Results

• 9MFY16 revenue of RM77.3m (+15% yoy) was translated into PATAMI of RM12.5m (-4% yoy).

• While revenue came within expectations, PATAMI was below expectations accounting for 61% and 66% of HLIB and street full year forecasts, respectively.

Deviations

• Higher than expected administration and distribution expenses due to higher headcount of staff.

Dividends

• None.

Highlights

• 9MFY16 review… Sales improved by 15% for 9M16 mainly due to the inclusion of Sanjung Unggul S/B finances as well as an improvement in its educational print publishing arm Sasbadi S/B (+17.1% yoy). However, EBITDA margin contracted by 2%-pts to 28%.

• 3QFY15 review… Coming from a seasonally stronger 2Q, both revenue and PBT suffered double-digit decline of 34% qoq and 37% qoq, respectively. Yoy basis, Sasbadi charted double-digit growth in revenue and PBT of 19% yoy and 33% yoy respectively, reflecting rising demand for education content apart from contribution from Sanjung Unggul.

• PATAMI took a hit due to an exorbitant increase in expenses. Both administrative and distribution expenses increased by 36% and 41% yoy, respectively, stemming mainly from the increased workforce that was hired to cater for Sasbadi’s business expansions .

• Nevertheless, we remain positive on longer-term prospects of Sasbadi as we anticipate the company to achieve an organic growth given the potential in its direct selling business (which focuses on sale of Sasbadi’s digital/onli ne educational products).

Risks

• Migration towards the online platform;

• Spike in paper prices; and

• Changes in National Curriculum and educational policies.

Forecasts

• We cut our FY16-17 earnings forecast by 26% and 11% respectively to factor in higher expenses.

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 lower TP of RM1.40 (from 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 vi ew, due to Sasbadi’s relati vely small market capitalisation and low liquidity.

Source: Hong Leong Investment Bank Research - 27 Jul 2016