News/ Comments

• Sasbadi announced that it has accepted two Letters of Acceptance (LoA) from the Ministry of Education (MoE) to publish, print, and supply the textbook packages for Mathematics and Arts Education subjects for Year 3 of the Chinese national-type primary schools (“SJKCs”).
• In the same announcement, Sasbadi’s indirect subsidiary, The Malaya Press S/B (subsidiary of Sanjung Unggul), has also accepted a LoA from the MoE to publish, print and supply the textbook package for Chinese Language for Year 3 of the SJKCs.
• All three contracts which amounted to RM6.5m will commence from 9th March 2018 and end on 31st December 2020. 
• The RM6.53m worth of LoAs are expected to contribute positively to group’s earnings in FY19. However, this is slightly lower than the first three contracts that Sasbadi won in FY17 which amounted to RM6.81m.
• The group will be delivering its first portion of textbooks in 1QFY19 and 2QFY19 worth approximately RM3.9m. The remainder of the contract sum will flow into FY19 and FY20.
• There will be one more round of tender award expected to be called in May-2018. Recall in FY17, Sasbadi won 2 contracts in the second round amounting to RM4.3m.

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

• 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

• Although our unchanged TP of RM0.62 yields more than 10% upside, we maintain HOLD recommendation with downward bias. Our TP of RM0.62 is based on 15x revised CY19 EPS of 4.0 sen.

Source: Hong Leong Investment Bank Research - 12 Mar 2018