This article first appeared in The Edge Financial Daily on May 2, 2019

Sasbadi Holdings Bhd
(April 30, 21 sen)
Maintain hold with an unchanged target price of 23 sen: Sasbadi’s booked weaker first half financial year 2019 (1HFY19) results as core earnings of RM7.5 million (-20.9% year-on-year [y-o-y], accounted for 91% and 87% of HLIB and consensus full-year estimates respectively.

Nonetheless, we deem the results in line given the seasonally subdued 2H weighed down by slower text book deliveries (2HFY18 core net loss amounted to RM1.5 million). Its 2QFY19 revenue weakened by 20.3% while core net profit decreased by 59.1%.

Sasbadi was hit by slower deliveries of text books against the 1QFY19 (which usually takes place before the school starts).

Its 2QFY19 core net profit dropped to RM2.2 million (-57.3%) on the back of decreased revenue (-8.2%). The print segment was hit by workbook-related matters, including the workbook ban for Standard 1, Two and Three and the limitation in the use of workbooks to Standard Four, Five and Six.

Nevertheless, Sasbadi’s Applied Learning Programme and Science, Technology, Engineering and Mathematics (ALP & Stem) segment continues to chart better performance (+78%), thanks to the Marshall Cavendish Education products.

Its 1HFY19 revenue was marginally higher by 1.9% to RM54.8 million aided by print and ALP & Stem. Nevertheless, core net profit was down by 20.9% attributable to the drop in gross profit, partly offset by lower expenses.

Sasbadi’s outlook looks challenging given the lower textbook awards win year to date. However, we believe Sasbadi is gaining traction in the areas it wants to grow, namely ALP & Stem. Though it is too early to get hyped in this segment, we believe this is the baby step to reduce the dependency on the print segment which was hit by subdued sentiments.

We keep our forecast unchanged due to its highly seasonal business in nature.

We expect muted 2H contribution, especially from print segment (93% of revenue), due to lower textbook award win. — Hong Leong Investment Bank Research, April 30