This article first appeared in The Edge Financial Daily on June 13, 2019
Sasbadi Holdings Bhd
(June 12, 17.5 sen)
Maintain hold with a lower target price (TP) of 18 sen: We met with Sasbadi Holdings Bhd recently, and came back feeling neutral on the group’s near- and medium-term outlooks.
The contribution of the non-print segment has grown in the last three years from the shift of its business focus due to its highly cyclical business that hampered earnings delivery.
Its non-print segment consists of (i) digital & network marketing; and (ii) Applied Learning Programme and Science, Technology, Engineering and Mathematics (ALP & STEM) Education. Under the digital and network marketing, Sasbadi ventured into the business after securing the right from the ministry of domestic trade to promote i-learn Ace products. While for ALP & STEM, Sasbadi is a distributor of education Lego blocks to schools and organiser of robot competitions.
Sasbadi still treats the print segment as their bread-and-butter operation given their core strength, though the print business is highly cyclical due to the timing of textbook delivery.
Year-to-date textbook contracts secured are significantly lower at RM1.57 million (first half of 2018 [1H18]: RM8.37 million), namely RM746,000 for arts education Year 4 and RM826,000 for Chinese Language Year 4.
We understand that there is no slowdown in disbursement of government contracts, implying that Sasbadi has been losing out to other publishers. All is not lost as we understand that Sasbadi is tightening is operations to secure more textbook awards from the ministry of education.
Despite early optimism on the back of higher number of agents, first half of financial year 2019 (1HFY19) multilevel marketing (MLM) segment revenue fell 38% year-on-year [y-o-y] to only RM2.5 million.
The setback was mainly weighed by loss of major distributors and coupled with the delay in replacing key leadership personnel. We understand that the key leader who left previously now has rejoined the team. We can expect sales to be revived on the back of this.
Sasbadi is active and committed to reducing its inventory level that stood at RM73 million as end of 2QFY19. Sasbadi is currently leveraging the Big Bad Wolf book fair which is held on a monthly basis, with the locations now involving more rural areas. Rural areas serve as an important market for Sasbadi, especially for school workbooks, and we understand that Sasbadi is willing to sell at cost to clear inventories during this event. — Hong Leong Investment Bank Research, June 12