News/  Comments

• Sasbadi announced that its wholly-owned subsidiary, Sasbadi S/B has received a Letter of Acceptance dated 28th April 2016 from Ministry of Education (MOE) to publish, print, and supply textbooks for the subject of Mathematics for Year 1 of Chinese national-type primary schools (SJKC) throughout Malaysia.

• In the same announcement, the group’s indirect subsidiary, The Malaya Press S/B (subsidiary of Sanjung Unggul), won 2 textbook contracts for the following subjects of Year 1 SJKC: (1) Chinese Language; and (2) Physical Education and Health Education.

• All three contracts which amounted to RM7.7m (see figure #2 below) will commence from 28th April 2016 and end on 31st December 2018.

• The full contribution from the textbook contract would be reflected in FY17. The group will be delivering its first tranche of textbooks in the first and second quarters of FY17 worth approximately RM4.3m.

• With the same assumption of 40%-50% gross margin, we expect the textbook contracts to contribute circa 10%-12% to the group’s FY17 bottomline.

• The textbook tender for the contract won by Sasbadi was closed in early February 2016. With the second tender recently closed in early April, we believe there would be more potential textbook contracts to be won by Sasbadi.

Risks

• Not winning the textbook contract from MOE;
• Migration towards the online platform;
• Spike in paper prices; and
• Changes in National Curriculum and educational policies.

Forecasts

• Unchanged pending a meeting with the management for an update post 2QFY16 results.

Rating

BUY

• We like Sasbadi due to its strong annual FCF, high growth rate, its innovativeness in creating products that cater to tech-savvy youth and unique education exposure which is closely linked to the country’s education system.

Valuation

• Reiterate BUY with TP of RM1.55 based on P/E multiple of 18x CY17 EPS. Targeted P/E is based on a discount of 40% to education sector. Valuation is justified in our view, due to Sasbadi’s rel ati vely small market capitalisation and low liquidity.

Source: Hong Leong Investment Bank Research - 29 Apr 2016