News

• In an announcement to Bursa Malaysia, Sasbadi announced that it has entered into two sale and purchase agreements with THHT Resources S/B (THHT) to acqui re two retail lots in Cova Square, Kota Damansara.

Comments

• Total consideration to be paid for both acquisition amounts to RM2.6m to be funded by the proceeds raised by Sasbadi through the completed private placement earlier this year.

• Utilisation of the private placement has been revised to increase repayment of bank borrowings by RM6.4m and the acquisition of RM2.6m. The available fund for future acquisitions now stands at RM5.9m.

• The properties, which are located in close proximity to Sasbadi’s head office, are meant to be used as Mindtech Education’s member recruitment and training activities. Mindtech Education is Sas badi’s subsidiary that focuses on its online segment of direct sales/ network marketing of their digital/ online educational products.

• Since June 2016, the number of recruitment for the company’s direct selling business has almost doubled from around 700 to more than 1,300 members. The property is currently being renovated for use by Mindtech Education and the acquisition is expected to be completed by 2QFY17.

• Overall, we are positive on the acquisition as we believe it allows focused resources for Mindtech which reaffirms our anticipation of organic growth from this division. However, any positive topline cont ribution will take some time to translate to the bottomline as the direct selling business is still in its initial stages.

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 unchanged TP of RM1.40 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 relati vely small market capitalisation and low liquidity.

Source: Hong Leong Investment Bank Research - 13 Sep 2016