Sasbadi’s 9MFY18 core earnings of RM10.3m (-21.2% YoY) were below ours and consensus expectation. 3QFY18 performance was affected by lower book sales and higher operating cost. We cut our FY18-20 earnings assumption by 18-20% respectively as we adjust for higher tax rate and operating cost. We downgrade to HOLD rating with a lower TP of RM0.42 based on an unchanged 12x P/E multiple tagged to CY19 earnings.

Below expectations: Sasbadi’s 9MFY18 revenue of RM75.1m translated into core earnings of RM10.3m (-21.2% YoY), accounting for 67% and 66% of HLIB and consensus full year estimates, respectively. The results disappointment was due to higher-than-expected tax rate and operating expenses.

QoQ: 3QFY18 recorded lower revenue of 27.9%, which resulted in a 89.4% drop in core earnings, this is mainly due to lower contribution from Print and Digital segment. Print sales dropped by 27.3% to RM17.2m and Digital sales dropped by 56.8% to RM1.1m due to (i) festive holidays, (ii) unscheduled long breaks and (iii) postponed orders as a result of the tax holiday.

YoY: 3QFY18 revenue and earnings declined by 12% and 79.5% respectively. The lower revenue was due to Print Publishing (-14.8%). The 79.5% fall in core earnings was due to lower margin from the Print Publishing segment (-8ppt to 48%) .

YTD: Revenue decreased by 6.3% mainly due to the non-recurring contract of RM3.8m for the supply of robotic sets to the MoE and the delayed order of reprint textbooks in 4QFY16 which flowed into 1QFY17 in the preceding year. However, the lower earnings were mainly due to lower revenue contribution and higher operating cost.

Forecast. We revise our FY18-20 earnings assumption downwards by 18-20% to RM12.9m, RM13.9m, and RM15.7m respectively, as we adjust for higher tax rate and operating cost.

Downgrade. Given the results shortfall we downgrade our rating from Buy to HOLD with lower TP of RM0.42 (previously RM0.50). Our TP is based on an unchanged 12x P/E (mean) tagged to CY19 earnings.

Source: Hong Leong Investment Bank Research - 27 Jul 2018