Sasbadi Holdings Bhd
(Sept 29, RM1.64)
Initiate coverage with “buy” with target price of RM2.25: Sasbadi Holdings is a strong and growing market leader in the local educational publishing industry with 9% market share. The group is well managed with high return on equity and superior profitability, thanks to its lean operating structure and complementary business model.
With the proceeds from its recent initial public offering, the group is in prime position to embark on earnings accretive M&As in the fragmented educational publishing industry. There is huge potential in the untapped education services market, in particular hands-on learning centres that foster creative thinking and innovation, where Sasbadi could tap into.
We forecast Sasbadi’s financial year of 2015 (FY15) to FY17 core profit after tax to expand at three-year compound annual growth rate of 22%, underpinned by earnings accretive M&As. Valuation is undemanding at 11x/9x/7x FY15-FY17 EPS, while yields are attractive at 5-7%.
We initiate coverage of Sasbadi with a high-conviction “buy” and discounted cash flow-derived target price of RM2.25 based on conservative assumptions: 9.5% cost of equity and 1% terminal growth. Our target price implies 16 times FY15 earnings per share, and suggests a total return of 55% from the last close of RM1.50. — AllianceDBS Research, Sept 29
This article first appeared in The Edge Financial Daily, on September 30, 2014.