News/  Comments

• In an announcement to Bursa Malaysia, Sasbadi announced that is has terminated its Memorandum of Understanding (MOU) with Southern Publishing and Media Company Limited, a publisher in China.

• Reason for the termination is solely because no progress was made since the MOU was announced in November last year (refer to report dated 11th November 2015 – MOU Alliance with Southern Publishing).

• Also, note that Southern Publishing and Media Company was listed in Shanghai Stock Exchange in February this year. Thus, we believe this could have contributed to the slow progress for the MOU between Sasbadi and Southern Publishing and Media Company.

• No financial impact to Sasbadi in our view – the MOU did not involve any significant costs for both parties.

• In view of the termination, we believe Sasbadi is still on the lookout for more opportunities domestically and internationally to add into their books.

Risks

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

Forecasts

• No changes to our forecasts as we have not taken into account any contribution from the MOU.

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 - 24 May 2016