Sasbadi reported core earnings of RM5.3m (+21.6% YoY), accounting for 65% and 63% of HLIB and consensus full year estimates. The higher earnings YoY were due to higher contribution from print publishing division and its fruitful efforts in cost rationalization. We revise our FY19-20 earnings assumption upwards by 10% respectively to factor higher contribution from print division and online publishing. Post earnings adjustment, we maintain HOLD rating with a higher TP of RM0.23 based on an unchanged 12x P/E multiple tagged to CY19 earnings.

Results above. Sasbadi’s 1QFY19 revenue advanced by 3% YoY, translating into core earnings of RM5.3m (+21.6% YoY), accounting for 65% and 63% of HLIB and consensus full year estimates. Historically, 1Q (Aug-Nov) was a slow quarter for Sasbadi which is before the start of academic year (impacting 2Q). However, Sasbadi booked higher sales due to the new textbook contract from MOE.

QoQ. Revenue accelerated by 139% while PBT increased by 167%. Higher supply of text books to the MOE and the recovery of market demand for the new academic year contributed to a stronger 1Q18 sequentially. This was also coupled with Sasbadi’s continuous efforts in optimising operational efficiency.

YoY. 1QFY19 net profit jumped 3% to RM30.5m contributed by print publishing department (+9.8%) thanks to the deliveries of new textbook contracts with MOE. Adding to that, non-academic products and continued sales from Marshall Cavendish Education (MCE) products supported the higher revenue.

Outlook. Based on our meeting with Sasbadi, they welcome the new initiative by government to promote contract transparency as this will enhance Sasbadi’s ability to secure more contracts, capitalising on its integrated online and offline offerings as an educational solution provider. In addition, Sasbadi has reallocated its resources to produce workbooks for the retail market and content for the export market pursuant to the loss of the local workbook related revenue. Management is positive on its participation in the international book fair as this will garner more interest on its Augmented Reality products as an effort to reduce the dependency on the local market revenue.

Forecast. We revise our FY19-20 earnings assumption upwards by 10% respectively to factor higher contributions from print division (in view of more textbook contracts secured) and online publishing. Nevertheless, we expect muted 2H contribution due to its highly cyclical business.

Maintain HOLD with a higher TP of RM0.23. Post earnings revision, we maintain our HOLD recommendation on Sasbadi but with a slightly higher TP of RM0.23 (from RM0.20). The encouraging results are due to its effort in securing more contracts from MOE while enhancing its effort for the retail segment. All in, we believe Sasbadi efforts are starting to show positive results that will mitigate the rising cost environment. Nevertheless, we maintain the ascribed PE of 12x to reflect its small market capitalisation, but still, remains a proxy to the rejuvenation of the education sector.

Source: Hong Leong Investment Bank Research - 23 Jan 2019