Highlights

• Sasbadi proposed a 1-for-2 bonus issue of up to 139.7m new ordinary shares of Sasbadi Holdings.
• The proposed bonus issue will be capitalised from the share premium account of Sasbadi Holdings at RM0.25 per bonus share. The exercise will be held on an entitlement date to be determined and announced at a later date.
• While the proposed bonus issue will not have an impact on Sasbadi?s fundamentals, we view the bonus issue positively as it enhances the liquidity of the stock.
• Latest development aside? We remain optimistic on Sasbadi?s earnings outlook. We understand that the company is taking continuous effort into looking for suitable M&A targets, and it is looking to acquire at least one publishing company p.a. in order to achieve better economies of scale.
• The MLM scheme, I-Learn Ace is on par with Sasbadi?s expectations and currently has around 6000 agents. It is still gaining good momentum, generating revenue of approximately half a million monthly. The group hopes to extend its direct-selling business to the international market. With its advance AR educational products the company believes that they have the advantage to go global.
• The group is collaborating with Universiti Malaya (UM) to provide accredited certification of robotic programmes to students and plans to franchise out its robotics education classes after getting its certification.

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 (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 RM1.73 (based on unchanged 18x CY18 EPS of 9.6 sen).

Source: Hong Leong Investment Bank Research - 21 Jun 2017