Sasbadi Holdings Bhd
(Aug 11, RM1.19)
Maintain buy with an unchanged target price (TP) of RM1.40: We continue to believe that Sasbadi Holdings Bhd serves as one of the best proxies for the Malaysian education sector, as it remains a dominant player in the domestic educational publishing industry with 10% market share.The group is well managed and enjoys high return of equity and superior profitability, supported by its lean operating structure and complementary business model. 

We cut our financial year 2016 (FY16) earnings by 9% to RM16.6 million, while keeping our FY17 to FY18 earnings largely unchanged. We expect the group to register about RM4 million core earnings in the fourth quarter of FY16 (4QFY16), driven by its organic growth and network marketing business.

Nonetheless, we believe that the growth in the group’s 4QFY16 earnings is not sufficient to compensate for the weak 2QFY16 results and to meet our earlier FY16 earnings forecast of RM18.2 million.

With regard to its textbook tenders, the group has won four out of 26 tenders available in the categories of mathematics for Year 1 national Chinese primary schools (SJKC), Chinese language Year 1 SJKC, physical education and health education Year 1 SJKC, and Chinese language for Year 1 national secondary schools. The contracts won year to date for textbooks amount to RM9.4 million

We maintain our “buy” recommendation for the group with an unchanged TP of RM1.40, based on 17 times FY17 earnings per share. Key risks to our view include failure to respond in time to changes in education policies that could hurt sales and earnings. — AllianceDBS Research, Aug 11