News/ Comments

• Sasbadi announced that its wholly-owned subsidiary, Sasbadi S/B has accepted two Letters of Acceptance (LoA) from the Ministry of Education (MoE) to publish, print, and supply the textbook packages for Mathematics and Arts Education subjects for Year 2 of the Chinese national-type primary schools (“SJKCs”).
• In the same announcement, Sasbadi’s indirect subsidiary, The Malaya Press S/B (subsidiary of Sanjung Unggul), has also accepted a LoA from the MoE to publish, print and supply the textbook package for Chinese Language for Year 2 of the SJKCs.
• All three contracts which amounted to RM6.81m will commence from 31st March 2017 and end on 31st December 2019. Subject Contract Amount Year 2: Mathematics RM2.98m Year 2: Arts Education RM0.76m Year 2: Chinese Language RM3.07m
• The RM6.81m worth of LoA(s) are expected to contribute positively to group’s earnings in FY18. However, this is lower than the first three contracts that Sasbadi won in FY16 which amounted to RM7.71m.
• The group will be delivering its first portion of textbooks in 1QFY18 and 2QFY18 worth approximately RM4.1m. The remainder of the contract sum will flow into FY19 and FY20.
• There will be one more round of tender award expected to be called in May-2017. Recall in FY16, Sasbadi won 1 contract in the second round amounting to RM1.6m.
• 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. While we expect a slower bottom line growth for its iLearn Ace segment given slow take-up rate, we remain positive on its potential over the longer term.

Risks

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

Forecasts

• We reduce FY18-FY19 earnings forecast by 7.4% and 4.4%, respectively, in light of lower-than-expected contract sum won and slower bottom line growth on its iLearn Ace front.

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 higher TP of RM1.73 (from RM1.63) post earnings forecast adjustment and roll over of valuation into CY18. Our valuation is based on unchanged P/E multiple of 18x CY18 EPS.

Source: Hong Leong Investment Bank Research - 05 Apr 2017