Sasbadi reported 1H19 core earnings of RM7.5m (-20.9% YoY), which matched expectations. The lower earnings YoY were weighed by slower print segment contribution that was hit by a weak market. Despite the bleak print segment outlook, Sasbadi is gaining traction in the areas they wants to grow, namely ALP&STEM. Maintain our earnings forecast with unchanged TP of RM0.23 based on an unchanged 12x P/E multiple tagged to CY19 earnings.

Results in line. Sasbadi’s booked weaker 1HFY19 results as core earnings of RM7.5m (-20.9% YoY), accounted for 91% and 87% of HLIB and consensus full year estimates. Nonetheless, we deem the results in line given the seasonally subdued 2H weighed by slower text book deliveries (2HFY18 core net loss amounted to RM1.5m).

QoQ. 2QFY19 revenue weakened by -20.3% while core net profit decreased by - 59.1%. Sasbadi was hit by slower deliveries of text book against the 1QFY19 ( which usually takes place before the school starts).

YoY. 2QFY19 core net profit dropped to RM2.2m (-57.3%) on the back of decreased in revenue (-8.2%). Print segment hit by work book related matters, this includes the workbook ban for standard 1, 2 and 3 and the limitation in the usage of workbook to standard 4, 5 and 6. Nevertheless, Sasbadi’s ALP&STEM segment continues to chart better performance with higher revenue of RM1.5m (+78%) thanks to the Marshall Cavendish Education (MCE) products

YTD. 1HFY19 revenue was marginally higher by 1.9% to RM54.8m aided by print and ALP&STEM. Nevertheless, core net profit was down by -20.9% attributable to the drop in gross profit, partly offset by lower expenses.

Outlook. Sasbadi’s outlook looks challenging given the lower textbook awards win YTD. However, we believe Sasbadi is gaining traction in the areas it wants to grow, namely ALP&STEM. Though it is too early to get hyped in this segment, we believe this is the baby step to reduce the dependency in the print segment which was hit by subdued sentiments.

Forecast. We keep our forecast unchanged due to its highly seasonal business in nature. We expect muted 2H contribution especially from print segment (93% of revenue) due to lower textbook award win.

Maintain HOLD with unchanged TP of RM0.23. We believe Sasbadi’s efforts are slowly starting to show positive results that may mitigate the prolonged subdued print segment. 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 - 30 Apr 2019