News Comments

• Sasbadi’s wholly-owned subsidiary Malaysian Book Promotions Sdn Bhd (“Malaysian Book Promotions”), has entered into a distribution agreement with Marshall Cavendish Education Pte Ltd (“MCE”) on 1 November 2017 (“Distribution Agreement”) to exclusively distribute, market and sell certain MCE-published titles to book sellers, wholesalers, schools, the Ministry of Education and/or by way of direct marketing consumers in Malaysia for a term from Nov-17 to Sep-20.

• Marshall Cavendish Education is a leading provider of holistic educational solutions in Singapore. It has a holistic blend of pedagogically sound curriculum providing K-12 (Kindagarten to 12 th grade) educational system.

• MCE already has presence in Malaysia since 2009; the targeted market is mainly the private and international schools in Malaysia.

Comments

• We are neutral on the news. The exclusive distributorship of MCE-published titles represents a niche segment that would mainly attract small-scale private and international schools especially for preschool and lower grade classes. As for the higher-grade students, MCE is likely to compete with larger and more reputable publishers such as Cambridge, Oxford and Edexcel.

• While this partnership would allow Sasbadi to generate a new revenue stream, we opine that near-term earnings contribution would be minimal.

Risks

(1) Accelerated migration towards the online platform;

(2) Spike in paper prices;

(3) Changes in National Curriculum/ educational policies;

(4) Execution of its direct selling segment

(5) Losing the textbook contract from MOE.

Forecasts

• Maintained.

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. Sasbadi possesses a niche in its innovativeness in creating products that cater to tech-savvy youth and unique education exposure.

Valuation

• We maintain HOLD with an unchanged TP of RM0.75 based on 18x revised CY19 EPS of 4.1 sen.

Source: Hong Leong Investment Bank Research - 9 Nov 2017