Results

• Within expectations. Reported 1QFY17 core earnings of RM4.3m, accounting for 18% and 19% of our and street?s full year estimates, respectively.

Deviations

• Typically a seasonally weaker quarter for the group but slightly lifted by delivery of textbook reprints that was delayed from the previous quarter. We anticipate higher earnings contributions from 2Q followed by 3Q as students purchase new books for the beginning of the school term.

Dividends

• None.

Highlights

• YoY: Sasbadi?s 1QFY17 revenue of RM31.2m increased by 48.4% mainly due to the delayed order of textbook reprints, new textbook orders, consolidation of United Publishing Group?s revenue and delivery/supply of robotics sets to schools under the contracts with MoE that was announced on 27 October 2016. PBT of RM6.4m increased by 96.9% arising from higher revenue but was slightly offset by higher costs incurred.
• QoQ: Revenue increased by 96.3% while PBT increased 51.3%. Textbook reprints which are typically ordered in 4Q were delayed into 1Q which contributed to a stronger 1QFY17 sequentially.
• Outlook: We remain positive on Sasbadi?s outlook as the company is gradually cementing its position as an education and solutions provider for Lego Education robotics products and STEM education. We look forward to the group?s future earnings coming from the new syllabus for 2018. Tendering process should end by March 2017. We believe the group is more prepared (compared to the previous year where a shorter response time was given) for the tendering for new syllabus. On top of that, we expect higher contribution from its online products via Mindtech education as it gains momentum.

Risks

• (1) Accelerated migration towards the online platform; (2) Spike in paper prices; (3) Changes in National Curriculum and educational policies; (4) Execution of its direct selling segment and (5) Losing the textbook contract from MOE.

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 RM1.63 (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 - 25 Jan 2017