News

• Sasbadi’s indirect subsidi ary – The Malaya Press S/B (TMP) (wholly owned subsidiary of Sanjung Unggul S/B), has announced that it has signed and accepted the Letter of Acceptance dated 18th May 2016 from MOE to publish, print and supply textbook for the subject of Chinese Language for Form 1 of national schools throughout Malaysia.

• The RM1.6m contract will commence from 18th May 2016 and end on 31st December 2018.

• TMP will deliver its first tranche of textbooks throughout Malaysia in the first quarter of FY17, worth circa RM1.5m.

• To recap, Sasbadi had previously announced TMP was awarded with the contract of publishing and distributing Year 1 Chinese Language and Physical Education and Health Education on 28th of April 2016.

• Similar to the previous cont ract award, earnings from the Form 1 Chinese language textbook contract is expected to kick in FY17 onwards.

• YTD, Sasbadi has secured approximately RM9.4m worth of textbook contract.

Risks

• Migration towards the online platform;
• Spike in paper prices; and
• Changes in National Curriculum and educational policies.

Forecasts

• Unchanged.

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 - 19 May 2016