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Sasbadi Holdings Bhd
(June 30, RM2.35)
Maintain “buy” with an unchanged target price (TP) of RM2.72:  
Sasbadi Holdings Bhd announced that it has entered into a share sale agreement to acquire 100% of the issued and paid-up share capital of PMI Education Sdn Bhd (PMI Education), for a purchase price of RM2.6 million. PMI Education was incorporated in Malaysia on Sept 29, 2003, and is operating Mantissa College. Located in the prime Taman Tun Dr Ismail area, the college offers tertiary education to some 300 students currently.  

We understand the acquisition is likely to be funded by cash. With cash of RM25.1 million as at Feb 28, 2015, we believe Sasbadi will have no issue funding the acquisition which is estimated to be completed in the first quarter of the financial year ending August 2016 (1QFY16). Hence, we expect any top line contribution to flow through from FY16 onwards. 

We are neutral with positive bias on the acquisition as it bodes well with Sasbadi’s strategy to become a well-known education solution provider. Considering it only has primary, secondary, Form Six and teachers’ education in its books, the addition of tertiary education should be a plus for the group. The financial performance of PMI Education has been fluctuating between marginal losses and profits over the past five to six years. Mantissa College can leverage Sasbadi’s market presence to propel itself to be on par with if not better than the more established colleges or universities in Malaysia.

We reckon the group should be able to turn around the tertiary education business based on its strong reputation and brand awareness as an educational provider.  We maintain “buy” with unchanged TP based on unchanged price-earnings ratio (PER) of 15.5 times calendar year 2016 earnings per share or circa 50% discount to average PER of education sector given its lower market capitalisation and liquidity. We think valuation is justified as Sasbadi has high growth rate and has a unique exposure to the country’s education system. — Hong Leong IB, June 30

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This article first appeared in The Edge Financial Daily, on July 1, 2015.

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