News/ Comments

• In an announcement to Bursa Malaysia, Sasbadi announced that it has acquired 100% equity interest in United Publishing House (M) Sdn Bhd (UPH) for a purchase price of RM4.35m.

• On top of being a major dictionary publisher, UPH also publishes books and trades printed materials with focus in early educational materials, story books, comic books, and school references and workbooks in Chinese language. Upon acquisition, Sasbadi will have an additional 880 titles in its possession.

• At the same time, UPH entered into various share transfer agreement with a purchase consideration of RM800k to acquire 100% equity interests in (1)UPH Distributor SB; (2) Penerbitan Minda SB; (3) Penerbitan Daya SB; and (4) GApple Studio SB, all of which are involved in a similar business as UPH but are currently inactive.

• As of FY15 UPH recorded a PAT of RM0.1m. Meanwhile, the other 4 companies to be acquired by UPH are currently loss making with a total loss of RM1.45m. Hence, we believe any positive contribution will take some time to kick in.

• Total consideration to be paid for all the above acquisitions amounts to RM5.15m to be funded by the proceeds raised by Sasbadi through the completed private placement earlier this year.

• Overall, we are neutral on the above acquisitions as the expected contribution is insignificant for now, accounting for less than 1% of FY16 PATAMI. However, we believe the acquisition will expand Sasbadi’s foothol d in the Chinese language publishing market.

Risks

• Migration towards the online platform;

• Spike in paper prices; and

• Changes in National Curriculum and educational policies.

Forecasts

• No changes to our forecasts pending more information from management.

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 relatively small market capitalisation and low liquidity.

Source: Hong Leong Investment Bank Research - 18 Jul 2016