This article first appeared in The Edge Financial Daily on January 23, 2020

Sasbadi Holdings Bhd
(Jan 22, 17.5 sen)
Maintain hold with an unchanged target price (TP) of 17 sen: Sasbadi Holdings Bhd reported core earnings of RM4 million for the first quarter of financial year ended Nov 30, 2019 (1QFY20) (down 9% year-on-year [y-o-y], up over 100% quarter-on-quarter [q-o-q]). The weaker y-o-y earnings were mainly due to lower contributions from its print publishing business. We believe that the q-o-q performance does not serve as a good comparison, given that Sasbadi’s business is highly seasonal.

Its 1QFY20 net profit accounted for 57% of our full-year forecast. Nonetheless, we deem its 1QFY20 results to be within expectations given that 1Q is seasonally the strongest quarter. In the past three financial years, 1Q results have contributed more than 40% of the group’s full-year earnings.

1QFY20 revenue for the group’s print publishing operations dropped by 8% y-o-y to RM26.4 million. The weaker top-line growth was mainly due to lower revenue from new textbook contracts.

Trade receivables increased by 24% q-o-q to RM60.9 million in 1QFY20. This is due to its 1Q being a seasonally stronger quarter while the 4Q is the weakest for the group.

We expect the prospects of Sasbadi’s print publishing business to remain challenging in view of: i) the ministry of education’s restrictions on workbooks in school; and ii) the shift from an exam-based to assessment-based education system with emphasis on class tests, projects and presentations.

Besides that, the general consumer shift from print to digital publishing will continue to pose challenges to the print publishing industry as a whole. Despite the challenging operating environment, we expect the group to register higher earnings for FY20 supported by: i) ongoing cost optimisation exercise; ii) higher contributions from its digital products and Marshal Cavendish products; and iii) new contributions from its English upskilling products.

We maintain our “hold” recommendation on Sasbadi with an unchanged TP of 17 sen, pegged at a 2020 price-earnings ratio target of nine times. We do not foresee any significant catalyst to rerate the stock at this juncture in view of the continued challenging operating environment for the publishing industry. — AllianceDBS Research, Jan 22