News/ Comments

• In an announcement to Bursa Malaysia, Sasbadi announced that its wholly owned subsidiary, Sasbadi Learning Solutions Sdn Bhd has entered into a share acquisition agreement to acquire 740,000 ordinary shares (100%) of the issued and paid-up share capital of Distinct Motion Sdn Bhd.

• Distinct Motion is principally involved in the business of conducting learning activities related to gadgets, automation systems and robotics technology. On top of that, Distinct Motion’s subsidi ary, Distinct Element Sdn Bhd, operates a centre known as Little Botz in Damansara Jaya, conducting learning activities of robotics technology.

• As of FY15 Distinct Motion has a net loss of RM42.7k and net assets of ci rca RM478.9k as at 31 May 2016. The acquisition is expected to be completed by 1QFY17.

• Total consideration to be paid for the acquisition amounts to RM850k to be funded by the proceeds raised by Sasbadi through the completed private placement in Jan-16.

• Overall, we are neutral on the acquisition as any positive contribution will be insigni ficant for now. However, we believe this acquisition will extend Sasbadi Learning Solutions’ principal activity to include conducting learning activities of robotics technology. Sasbadi will also gain two operating learning centres with its team of personnel, which is in line with its plans to establish applied learning centres focusing on science, technology, engineering and mathematics (STEM).

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 vi ew, due to Sasbadi’s relati vely small market capitalisation and low liquidity.

Source: Hong Leong Investment Bank Research - 19 Sep 2016