Results

• Below expectations: FY17 revenue of RM93.1m (-0.2% yoy) translated to core earnings of RM8.9m (-17.4% yoy), accounting for only 52.6% and 50.2% of our and consensus full-year estimates.

Deviations

• Weaker-than-expected retail market, higher-than-expected operating and tax expenses, and finance costs.

Dividends

• None

Highlights

• YoY: 4QFY17 recorded a core net loss of RM3.1m, hit mainly by weak retail market, higher operating cost (arising from the consolidation of United Publishing Group (UPH, which acquisition was completed back in July 2016) and higher finance costs.
• QoQ: 4QFY17 turned into red (from a core net profit of RM2.5m in 3QFY17), due to weak retail market and seasonal factors (as 4Q is seasonally weaker, on the back of higher administrative expenses and finance cost).
• YTD: FY17 core net profit declined by 17.4% to RM8.9m, owing to higher operating costs arising from consolidation of UPH’s full-year results, higher cost of amortisation of intellectual properties, and increase in interest expense.
• Outlook: We believe that the usage of printed books would start diminishing, given the government’s recent announcement to venture into 21st Century Smart Classrooms, which would in turn reduce the usage of printed books. However, we opine that this would not materialize in the short run as Sasbadi would need time to explore opportunities for synergistic collaboration with third party.

Risks

• Accelerated migration towards the online platform;
• Spike in paper prices;
• Changes in National Curriculum/ educational policies;
• Execution of its direct selling segment
• Losing the textbook contract from MOE.

Forecasts

• We cut our FY18 and FY19 earnings forecasts by 32.0%, 36.6% to RM14.9m and RM16.8m respectively, mainly to adjust for lower revenue, higher operating expenses and finance cost. We also introduce FY20 earnings forecast of RM18.6m.

Rating

HOLD (↓ )

• Despite having growth potential in the long run (arising from i-Learn Ace and advance AR educational products), we are turning cautious on Sasbadi’s outlook given the latest set of disappointing results. It possesses a niche in its innovativeness in creating products that cater to tech-savvy youth and unique education exposure.

Valuation

• We downgrade our recommendation on the stock from BUY to HOLD with a lower TP of RM0.75 (from RM1.51 previously) based on 18x revised CY19 EPS of 4.1 sen.

Source: Hong Leong Investment Bank Research - 01 Nov 2017