Sasbadi Holdings Bhd
(Jan 28, RM1.40)
Reiterate buy with a target price (TP) of RM2.25: Sasbadi Holdings reported a first quarter for the financial year ended Nov 30, 2014 (1QFY15) core earnings of RM1.6 million (+35.5% quarter-on-quarter. There is no year-on-year comparison as the group was only listed in July 2014. 

Although the group’s 1Q earnings only accounted for 9% of our full-year earnings, we deem its quarterly results within expectations since 1QFY15 is a seasonally weak quarter for the group. 

For its FY15 ended Aug 31, 2015 (FY15), we understand that 2Q (December to February) is expected to post the highest quarterly sales, followed by 3Q (March to May).

The group has declared 3 sen interim dividend, which represents greater-than-200% payout from its reported 1QFY15 earnings per share (EPS) of 1.3 sen. 

We understand that the higher-than-expected dividend payout is to partly compensate shareholders for no dividends in the last FY. We believe that the strong dividend payout also implies management’s optimism about its earnings prospects going forward. 

For now, we are maintaining our 50% payout assumption for FY15, which implies an attractive dividend yield of 4.8%. We keep our earnings unchanged pending a meeting with the management for an updated post results. We reiterate our “buy” call on Sasbadi based on a discounted cash flow-derived TP of RM2.25. The stock is trading at an undemanding valuation (10.4 times/8.2 times/6.7 times FY15 to FY17 EPS). Yield is decent at 4.8% for FY15.

The risks to our call are a sudden surge in paper costs which represents 38% of Sasbadi’s cost of goods sold, failure to respond timely to changes in education policies, and the loss of contract revenues. — AllianceDBS Research, Jan 28

This article first appeared in The Edge Financial Daily, on January 29, 2015.