· Biggest market share. With over 30 years of experience, SASBADI is a leading print publisher of primary and secondary schools National School Curriculum (NSC) based educational material. This includes textbooks and supplementary educational materials (e.g. revision books) and is widely used by most national schools, while students and parents aim for their study guides. Publishing and printing of education syllabus makes up c. 85% of FY14 revenue, while remaining comprises of publication of supplementary materials, applied learning and online segments. The group has an estimated 9% market share (revenue of c.RM80m) where the group is believed to have the largest market share in this fragmented industry, while the next biggest player is Pelangi at c.7% market share (revenue of c.RM60m).

· Competitive edge hard to replicate, such as: (i) having a sizeable experienced editorial team (c.100 editors with more than 15 years’ experience), (ii) extensive and established distribution network of c.1,500 points in Malaysia, and (iii) economies of scale. These factors give the group an edge in terms of producing new titles quickly and easily whenever there are changes in MoE’s curriculum requirements. This translates to them having the highest production volume of c.1300 titles p.a. vs. c.700 titles p.a. by its peer, Pelangi. For instance, SASBADI was able to roll out new reference book materials (Jun-14) within a one-month period after the MoE had changed the PT3 (Pentaksiran Tingkatan 3) assessment format which was in time to cater to demands arising from the PT3 exam.

· A more efficient player. Compared to its only listed peer, Pelangi, it is evident that SASBADI success is a result of economies of scale hence better cost efficiency. They also enjoy an asset-light operation structure given that printing is outsourced while they focus on the richer margin content development. For better illustration, its 3-year historical average EBIT margin is c.22% as compared to Pelangi’s average EBIT margin of c.12% on better cost structures, including proportionately lower admin/market costs. Core net margin wise, SASBADI enjoys c.18% vs. its listed peer’s c.8%.

· Expanding market share through M&A. Recall that SASBADI has acquired IP rights from Penerbitan Multimedia S/B and Pearson Malaysia for RM1.0m and RM5.5m, respectively to venture into the teacher training and post-secondary education segment (which the group has previously no presence). For future acquisitions, we understand that any acquisitions initiated by SASBADI will be market cap accretive and earnings accretive as well. We reckon that this is likely given that its acquisition PERs are estimated to be lower than the Group’s trading PER and we expect synergies due to better economic of scale. Thus far, management has allocated RM11.5m (46%) of its IPO proceeds for the acquisition of publishers to venture into the Chinese national school segment (see overleaf for details).

· Online content-the new growth driver. SASBADI recently rolled out its ‘interactive bookmark’ product that allows students to leverage on the online platform to supplement their studies. Besides, the group have also partnered with PT Penerbit Erlangga to operate i-Learn platform in Indonesia. We are positive on this expansion strategy as it enables the group to mitigate the risk of the online platform that is slowly replacing the traditional paper and book that we are using now. However, meaningful contributions will most probably be seen in the next couple of years, in our view.

· Projecting FY15-16E core NP growth of 14%-29% to RM17.6m-RM20.0m, underpinned by (i) Print Publishing revenue to growth by 13%-10% assuming that number of titles published to grow by 13%-12% to 1300-1450 for FY15-16E, respectively, (ii) other segments to achieve flat growth, (iii) stable margins. · 50% dividend payout. They have a dividend policy of up to 50% payout, and assuming full 50% payout, it translates into a DPS of 7.8 sen or 3.8% yield.

· NOT RATED. Based on Pelangi’s annual and quarterly data, SASBADI should be valued in the range of RM2.21-RM2.68, based on targeted 14.0x-17.0x FY16 PERs. The applied PERs are Pelangi’s respective historical and trailing peak PERs. We believe this higher-end valuation range is justifiable after taking several factors (such as larger market capitalization, superior margins and stronger earnings growth trajectory vis-à-vis Pelangi) into considerations. Moreover, any positive newsflow from its M&A plays and i-Learn program could serve as re-rating catalysts. · Key risk: (i) Volatility in paper prices, (ii) Changes in Educational policies, (iii) Migration to online platform.

Source: Kenanga Research - 5 May 2015