Sasbadi Bhd (Oct 14, RM1.60)
Maintain buy with target price of RM1.67: Sasbadi has entered into a License and Services Agreement (LSA) with one of Indonesia’s largest book publishers, PT Penerbit Erlangga. This would grant the publisher an exclusive and non-transferable licence to use its interactive online learning system i-LEARN, and sell the latter’s online learning materials under the platform in Indonesia. In return, Sasbadi will receive a one-off US$300,000 (RM978,000) non-refundable licence fee, as well as a semi-annual royalties fees based on net sales generated through the online platform in Indonesia.
This is a positive development as it would allow Sasbadi to diversify its market and get a piece of the fast growing Indonesian education industry without additional business risks and costs.
According to Euromonitor, Indonesia’s book publishing industry expanded at a 5-year compound annual growth rate of 6% over 2007 to 2012 to 6.6 trillion rupiah, driven by economic growth and rising awareness of education. This is 2.4 times the size of Malaysia’s book publishing market, and we foresee the growth potential to be much stronger in Indonesia premised on its large population of 253 million versus 28 million in Malaysia.
The one-off licence fee would lift FY15F profit after tax by 6%; we will review our forecasts after the release of the 4QFY14 results. Over the longer term, the recurring royalty fees from platform sales will grow earnings contribution from Indonesia. — AllianceDBS Research
This article first appeared in The Edge Financial Daily, on October 15, 2014.