Highlights

• Sasbadi entered into a conditional sale and purchase agreement (SPA) to acquire the remaining 30% of the issued share capital of Sanjung Unggul Sdn Bhd for a purchase consideration of RM9.4m.
• Recall, Sasbadi Holding acquired 70% of the issued share capital of Sanjung Unggul back in Aug-2015, and the acquisition helped Sasbadi to strengthen its presence in the Chinese school market.

Comments

• We deem the purchase price of RM9.4m to be fair, as it translates to a 13x P/E, which is lower than the average industrial P/E of 18x (Figure 1). Based on our estimates, the acquisition will contribute an additional 2-3% to bottom line of Sasbadi.
• We believe the group will continue to seek for more M&A to tap into newer and more advanced education-related segments. As it is the group’s strategy to achieve at least one M&A a year.

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 continue to like Sasbadi due to its high growth potential (arising from i-Learn Ace and advance AR educational products), 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 - 26 Jul 2017