Results

• In line: 1QFY18 revenue of RM29.5m (-5.6% yoy) translated to core earnings of RM4.4m (6% yoy), came in within ours but below consensus earnings estimates, accounting for 29.5% and 19.6% of full year estimates, respectively.

Deviations

• We deem the results within expectation (due to seasonality first half is usually stronger than second half).

Dividends

• None

Highlights

• QoQ: 1QFY18 turned profitable (from a core net loss of RM3.1m in 4QFY17), due to stronger retail market and seasonal factors (as 4Q is seasonally weakest).
• YoY: 1QFY18 recorded a core net profit of RM4.4m (as compared to RM4.1m in 1QFY17), mainly due to lower expenses incurred for the current financial year as the group had implemented cost saving measures (reduced head counts).
• Outlook: We believe that the usage of printed books is migrating to digital. Sasbadi will be able to leverage on the government’s recent announcement to venture into 21 st Century Smart Classrooms. 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

• (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

• Unchanged

Rating

HOLD (↔)

• We remain neutral on Sasbadi’s earnings outlook, while tracking closely the growth potential from i-Learn Ace and advance AR educational products. We opine that they will take time before showing significant contributions.

Valuation

• We maintain our HOLD recommendation on the stock to with a lower TP of RM0.62 (from RM0.75 previously) based on 15x revised CY19 EPS of 4.0 sen. We lower our target P/E on the sector by 2x P/E multiple to 15x, as we believe the core business is deteriorating and will face more challenges going forward.

Source: Hong Leong Investment Bank Research - 19 Jan 2018