Sasbadi reported FY19 core earnings of RM6.3m (-23.3% YoY) which was below our and consensus expectations due to margin compression. Sasbadi’s effort to diversify income into non-print segment remains murky. Nevertheless, there are some positive s for its print segment due to its recent appointment as the preferred partner for Cambridge Linguaskill and the exclusive distributor for NYC English products. Maintain SELL with lower TP of RM0.155 tagged to 10x CY20 earnings.

Below expectations. Sasbadi posted 4QFY19 core loss of -RM2m (3QFY19: RM0.8m, 4QFY18: -RM2.1m) which resulted in full year FY19 core earnings of RM6.3m (-23.3% YoY). The latter accounted for 82.9% and 77.2% of HLIB and consensus full year estimates, respectively. The earnings setback was attributed to the margin compression. No dividend was declared.

QoQ. Revenue dropped 14.7% on the back of a seasonally muted quarter, which resulted in a core loss of -RM2m vs. RM0.8m profit in 3QFY19. Lower contributions from print and digital segments were the culprit for lower earnings. Print segment was impacted from slower textbook delivery and digital segment was weighed down by slower sales impacted less working days.

YoY. Despite lower revenue from digital segment (-40.6%), overall revenue rose 20.6% contributed by print (+34.7%) and APL (+13.7%) segments. Still, core loss was pretty much unchanged at -RM2m (4QFY18: -RM2.1m) due to margin erosion.

YTD. Slightly higher revenue by 2.3% was aided by print (5.3%) and APL (14.4%) but was offset by digital segment (-28.7%). Nevertheless, lower EBIT margin dragged core earnings by 23.3% to RM6.3m.

Outlook. Sasbadi’s efforts to diversify income into non-print segment remains murky. Nevertheless, there are some positives for its print segment due to its recent appointment as the preferred partner for Cambridge Linguaskill and the exclusive distributor for NYC English products.

Forecast. We revise our FY20-FY21 earnings by -14% and -7.5% respectively in view of challenging earnings delivery from non-print segment.

Maintain SELL TP: of RM0.155. Our TP RM0.155 on Sasbadi is based on a 10x PE multiple tagged to CY20 EPS. The applied multiple is based on the -2.5SD below 3- year mean, reflecting the prolonged time frame for print segment to recover. In addition, the prospect remains vague for Sasbadi as we feel that the contribution from non-print segment still slow to mitigate the falling contribution from the print segment.

Source: Hong Leong Investment Bank Research - 1 Nov 2019