Results

• Sasbadi’s 4QFY16 revenue of RM15.9m was translated into PATAMI of RM4.3m. This brought FY16 core PATAMI to RM12.6m (adjusted for negative goodwill arising from the acquisition of United Publishing House S/B), accounting for 81% and 80% of ours and street’s full year estimates, respectively.

Deviations

• Delayed order on textbook reprints, higher fixed costs from acquisitions and gain on bargain purchase of RM4.3m.

Dividends

• Declared 1.25 sen final single tier dividend.

Highlights

• YoY: Sasbadi’s FY16 revenue of RM93.2m increased by 6.6% mainly due to the consolidation of Sanjung Unggul Group’s full year results. PBT increased by 3.8% as Sasbadi’s educational materials publishing subsidiaries recorded higher gross profits (Sasbadi S/B (+8.6% yoy), Sanjung Unggul S/B (+137.2% yoy) and Sasbadi Holdings Bhd (+178.1% yoy)).

• However, the group’s 4QFY16 revenue declined by 20.9% yoy mainly attributed by a weaker revenue recorded by Sanjung Unggul Group (-39% yoy) due to a delay in textbook reprint orders. On top of that, its subsidiary, Malaysian Book Promotions S/B, recorded weaker sales of RM4.5m (-36.4% yoy).

• Core PATAMI declined 18.1% as Sasbadi, on top of the weaker revenue, faced higher fixed costs pertaining to its recent acquisitions and increased capacity which upped staff costs and other fixed costs.

• QoQ: 4QFY16 revenue declined -29.1% to RM15.9m as its 3QFY16 revenue enjoyed higher sales of new academic books which were delayed from 2QFY16. This resulted in a core PATAMI of RM0.03m, after taking out the gain from bargain purchase of RM4.3m (from United Publishing House).

• Outlook: We remain positive on Sasbadi’s outlook as we expect higher contribution from its online products via its direct sales/ network marketing channel (Mindtech Education) as it has already broken even and is expected to gain momentum. We also expect higher contribution from its subsidiary Sanjung Unggul as the delayed textbook reprint will come in 1QFY17. The group’s recent contract with MoE to supply Lego Education robotics products to primary and secondary schools in Malaysia will also give Sasbadi the limelight as the sole distributor of the Lego Education robotics set in Malaysia. Moreover, as mentioned in our “2017 Budget” report, we believe that Sasbadi will be a beneficiary of the government’s spending on education.

Risks

• (1) Accelerated migration towards the online platform; (2) Spike in paper prices; (3) Changes in National Curriculum and educational policies and (4) Execution of its direct selling segment.

Forecasts

• We increase FY17 earnings forecast by 9.0% as we expect better earnings visibility moving forward. We introduce our FY18 forecast.

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 a higher TP of RM1.63 as we roll over our valuation to FY18 with EPS growth of 20.8% (unchanged 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 - 1 Nov 2016