Sasbadi has accepted 2 LoAs from the MoE to publish and print science and Chinese language textbooks for Form 3 of the national schools. Both contracts amounted to RM5.8m, bringing FY18 YTD contract wins to RM12.3m (11% higher YoY). Despite the higher contract wins this year, we still opine that earnings may continue be negatively affected by the change in government book voucher distribution. With this in mind we cut our FY18-20 earnings assumption by 6%-7% respectively as we adjust for lower book sales. As a result, our TP is lowered from RM0.50 to RM0.47 (12x CY19 P/E). Nonetheless, share price has fallen 36% YTD, lowering CY19 P/E to an attractive 9.6x. Coupled with our conservative earnings estimate, we feel there is now sufficient buffer to warrant an upgrade to BUY.

NEWSBREAK

Wins Textbook Tenders for Form 3 Science and Chinese Language. Sasbadi announced that it has received a Letter of Acceptance (LoA) from the Ministry of Education (MoE) to publish and print Form 3 national school textbooks for the subjects of science (RM4.8m) and Chinese language (RM1m). Both contracts (RM5.8m) will commence from 10 April 2018 and end on 31 December 2020. Sasbadi will be delivering its first portion of textbooks in 1QFY19 and 2QFY19 worth approximately RM5.2m. The remainder of the contract sum will flow into FY20.

HLIB’s VIEW

Higher Contract Wins Vs Last Year. Together with the earlier 3 contracts won in April 2017 (worth RM6.5mil), Sasbadi’s FY18 YTD total wins amounts to RM12.3m, an improvement compared to RM11.1m secured in FY17.

Forecast. Despite the higher contract wins this year, we still opine that earnings will continue be negatively affected by the change in government book voucher distribution to 1Malaysia Student Discount Card (KAD1SM). Bearing this in mind, we take this opportunity to cut our FY18-20 earnings assumption by 5.9%-6.9% respectively as we adjust for lower book sales.

Valuations Have Turned Attractive. Given the earnings cut, our TP has been reduced from RM0.50 to RM0.47 based on an unchanged 12x P/E (mean) tagged to CY19 earnings. Nonetheless, we note that Sasbadi’s share price has fallen by 36% YTD. This brings CY19f P/E down to just 9.6x. We view this as a re-entry opportunity given the growth potential from i-Learn Ace and advance AR educational products. Given the share price decline, coupled with our rather conservative earnings forecast, we feel there is now sufficient buffer to warrant an upgrade in our rating to BUY (from Hold).

Source: Hong Leong Investment Bank Research - 11 Apr 2018