This article first appeared in The Edge Financial Daily on October 16, 2018
Sasbadi Holdings Bhd
(Oct 15, 25.5 sen)
Maintain buy with a lower target price (TP) of 36 sen: Although Sasbadi Holdings Bhd’s earnings rebound may not be as strong as initially expected, we believe its share price weakness has factored in most negative news. However, we are optimistic that Sasbadi could benefit from the new government’s policy focusing on transparency and strengthening the country’s education system. This is because we believe Sasbadi offers some of the best educational products in Malaysia. The upcoming Budget 2019’s potential goodies such as reintroducing book vouchers could also serve as catalysts for the sector.
Recently, the group launched i-Learn Ace Junior, catering for Standards One to Three students. According to statistics published by the education ministry, about 1.3 million students enrolled in Standards One to Three in 2017. As such, management is optimistic that the launch of this new product will broaden its footprint untapped by its existing i-Learn Ace, to accommodate Standard Four to Form Five students.
Sasbadi is poised to release the fourth quarter ended Aug 31, 2018 (4QFY18) results on Oct 26. 4Q is traditionally a weak quarter for the group given it is an off-peak season for academic products as students usually have acquired most of their academic books prior to that. Therefore, Sasbadi typically derives a substantial amount of its publication revenue from non-academic products. We understand that despite the tax holiday period, its publication business did not pick up significantly in 4QFY18. We believe this was partially due to consumer spending skewed towards big-ticket purchases such as motor vehicles and household appliances.
We cut our FY18 to FY20 earnings estimates by 17% to 21%, as we lower our FY18 to FY20 publication business growth rates to -6%/2%/1% (previously -2%/4%/3%); reduce our revenue assumptions from networking marketing business to RM9 million/RM12 million/RM15 million for FY18 to FY20 (previously RM10 million/RM15 million/RM18 million); and adjust for book-keeping purposes. Potential measures that we believe Sasbadi is well-positioned to capitalise on include the introduction of digital learning solutions, a focus on science, technology, engineering and mathematics and robotics education, and a potential plan to raise the mandatory education from six years of primary education currently to Form Five. This is because we believe Sasbadi offers some of the best educational products in Malaysia. In the nearer term, the upcoming Budget 2019’s potential goodies such as reintroducing book vouchers could also serve as catalysts for the sector.
The group is currently trading at calendar year 2018 price-earnings (PE) of 11 times (compared with its mean PE valuation of more than 20 times), which we deem as an attractive valuation. — AllianceDBS Research, Oct 15.