News/ Comments

• Sasbadi Sdn Bhd has entered into two Publishing Agreements with Majlis Peperiksaan Malaysia (MPM) in relation to the publishing, printing, distributing, marketing and sales of the collections of past year question papers for the Sijil Tinggi Persekolahan Malaysia (“STPM”) examination and Malaysian University English Test (“MUET”).
• MPM operates under the aegis of the Ministry of Education Malaysia and is the sole owner of the question papers for the STPM examination and MUET. Under the Publishing Agreements, MPM grants Sasbadi with exclusive licence for a period of three years to prepare, publish, print, distribute, market and sell past year question papers for STPM examination (Science and Social Science Streams) and MUET, as well as the analysis reports on the STPM examination and MUET for the examination years of 2017, 2018 and 2019.
• We are positive on the Publishing Agreement as it expands Sasbadi’s offerings. We also deem the agreement to be synergistic with Sasbadi as the group also offers STPM syllabus through the group’s purchase of Pearson’s STPM titles which was rebranded under Malaysian Book Promotions, a subsidiary of Sasbadi. We expect positive top and bottom line contributions to kick in as soon as in 3QFY17 despite minimal quantum.
• We reiterate our positive outlook on Sasbadi as the company grows more solid through its fervent effort to cement its position as a sought-after educational publishing company, as well as an education and solutions provider for Lego Education robotics products and STEM education. Today marks the last day for submissions of textbook tendering under MoE and we look forward to the group’s future earnings coming from the new syllabus for 2018. We believe the group is more prepared (compared to the previous year when 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

• Maintained with an upward bias, pending management meeting.

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) for now pending our meeting with management, with an upward bias.

Source: Hong Leong Investment Bank Research - 14 Mar 2017