Results

• Below expectations: 9MFY17 revenue of RM80.1m (+3.6% yoy) was translated into core earnings of RM12.1m (-1.9% yoy), accounting for only 62% and 55% of HLIB and consensus full-year estimates.

Deviations

• Higher-than-expected operating and finance costs.

Dividends

• Declared interim DPS of 1 sen, bringing total DPS to 2 sen YTD (translating to a dividend yield of 1.4%).

Highlights

• YoY: 3QFY17 core net profit fell by 31% to RM2.5m, due mainly to higher operating cost arising from the consolidation of United Publishing Group (UPH, which acquisition was completed back in July 2016) and higher finance costs amidst weak consumer sentiment.
• QoQ: 3QFY17 core net profit fell 53.6% to RM2.5m due to seasonal factors (2Q is seasonally stronger on the back of the start of new academic year).
• YTD: Although revenue increasing by 3.6% (mainly due to the consolidation of UPH and higher revenue recorded by the Sanjung Unggul Group, which publishes textbooks for SJKC), 9MFY17 core net profit declined by 2% to RM12.1m, owing to higher administrative expenses and finance cost.
• Outlook: We remain positive on Sasbadi’s potential over the longer term as the company grows more solidly through its ongoing effort to cement its position as a sought-after educational publishing company. As we understand that 1) I- Learn Ace is gaining good momentum, recruiting an average of 350-500 agents monthly and currently has around 6500 agents. 2) Sasbadi is planning to franchise out its robotics education classes after getting its certification, and 3) Sasbadi is eyeing to acquire publishing companies of different genre. 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

• We cut our FY17, FY18 and FY19 earnings forecast by 16%, 13 % and 12% to RM16.9m, RM21.9m and RM26.5m mainly to adjust for higher operating expenses and finance cost.

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 a lower TP of RM1.51 (from RM1.73 previously) based on 18x revised CY18 EPS of 8.4 sen.

Source: Hong Leong Investment Bank Research - 27 Jul 2017