Sasbadi’s M&A plan on track


  • Business
  • Saturday, 07 Feb 2015

Sasbadi Holdings Bhd managing director Law King Hui and its publications.

Syllabus-based content provider to also continue growing organically

Sasbadi Holdings Bhd’s operations as a syallabus-based content provider may not be the sexiest of businesses but the 30-year-old company has a solid plan to ensure growth remains a priority.

For one, co-founder and managing director Law King Hui says it has identified a merger and acquisition (M&A) target, just seven months after it first got listed on Bursa Malaysia’s Main Market, raising some RM25mil in the process.

Sasbadi, which cut its teeth publishing Kurikulum Bersepadu Sekolah Menengah (KBSM) workbooks in the 1980s, has two years from the point of its July initial public offering (IPO) to make an acquisition and has said that it is prepared to spend up to RM11.5mil of the IPO proceeds to partly or fully finance it.

“At the moment, we are still in informal talks with the target firm, so I can’t say more,” Law, who controls approximately 40% of the firm, tells StarBizWeek.

Sasbadi will likely cut a deal with a major local Chinese publisher, paving the way for it to move into the Chinese national-school segment in a significant way, having already carved a name for itself in both the Malay and English revision, assessment and workbook segments, according to past reports.

The company, which currently derives more than 80% of its revenue from its print segment, with the rest mostly from online educational content offerings, would also be able to leverage on the Chinese publisher’s intellectual property, observers point out, to produce new education digital products if the acquisition goes through as it already has the required infrastructure.

While Law doesn’t divulge anything more on the potential M&A as talks are ongoing, he does say that earnings should see a “significant boost”, if and once the acquisition goes through.

Meanwhile, based on their own assumptions, the observers who track the company believe that Sasbadi will be able to see an increase of up to 25% in its annual revenue should it succeed in its M&A plan and add that such a deal would be earnings-accretive for it almost immediately.

For the financial year ended Aug 31, 2014 (FY14), Sasbadi’s revenue stood at RM79.5mil.

Organic growth remains

In a Jan 15 report for clients, AllianceDBS Research analyst Cheah King Yoong notes that apart from M&A plans, Sasbadi remains focused on organic growth.

The group, which according to an independent research house is currently among the top three education publishers in Malaysia, will roll out about 1,300 titles this year compared with 1,150 titles last year, with new products to capitalise on the revised examination format with the rolling out of Pentaksiran Tingkatan 3 (PT3) or Form 3 Assessment, Cheah notes.

There is also a plan to introduce more concise yet comprehensive revision books to cater to the increased popularity of such publications to students, he says.

Cheah, who has a target price of RM2.25 on Sasbadi’s stock, also points out that the company’s new applied learning centre, which will focus on science, mathematics and technology using robotics and children educational development products, is expected to commence operations by the first half of this year in Kota Damansara.

“We are optimistic on this expansion strategy in view of rising demand for such sophisticated educational products and services in Malaysia.”

Sasbadi shares last traded at RM1.50 apiece, 26% above its IPO price of RM1.19.

Minimal impact from textbooks

In addition to M&A plans as well as new products and services, Law says the company is also waiting for textbook tenders to be called by the Government, likely sometime in the second half of this year in view of a change in the 2017 curriculum for national-type secondary school students.

Notably, textbook sales are not significant to the company’s overall revenue, contributing less than 5% to its total turnover in FY14.

“We are confident of winning textbook tenders, as our track record in the past has been good.

“However, textbook sales will not impact the company too much, as it only formed less than 5% of group revenue as at our last fiscal year,” Law says.

Sasbadi made a net profit of RM1.6mil on a revenue of RM16.3mil for its first quarter ended Nov 30. Typically, the first quarter is its weakest quarter.

For this quarter, it declared a 3 sen per share interim dividend, which represents more than a 200% payout based on an earnings per share of 1.3 sen.

In FY14, net profit stood at RM12.3mil.

Analysts are projecting a 3-year earning compound annual growth rate (FY15-FY17) of at least 20% for Sasbadi, driven by both its M&A and organic plans, notwithstanding the risks including a sudden surge in paper cost, which makes up about 38% of its total cost, as well as failure to react quickly enough to any change in education policies.

Last October, Sasbadi got a slice of the Indonesian education market when it signed a licence and services agreement with one of Indonesia’s biggest book publishers, PT Penerbit Erlangga, for the latter to use its interactive online learning system i-LEARN, and sell its online learning materials in Indonesia.

From this, it reaped RM1mil up front in terms of license fee and will get 8% of its Indonesia counterpart’s i-LEARN annual sales as part of royalty earnings.

Overseas profits remain negligible but Law plans for the company to spread its wings abroad in a bigger way, especially when it has more digital product offerings which it hopes to have, hinging on the intended M&A with the local publisher.

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