AllianceDB raises Sasbadi target price to RM1.58

PETALING JAYA: Despite Sasbadi Holdings Bhd registering a below-expectation core earnings of RM12.5mil for the fourth quarter of financial year 2016(4QFY16), AllianceDBS Research remains positive on its earnings prospects.

Sasbadi’s lower-than-expected core earnings was predominantly due to delay in reprinting of a textbook contract, which is due to be recognised in 1QFY17. Sasbadi which is one of the best proxies to the Malaysian education sector, controls about 10% market share in the domestic educational publishing industry.

AllianceDBS is optimistic on Sasbadi’s earnings prospects as the publisher has a RM9.4mil textbook tender secured. Its reprinting contract and robotic contract is likely to contribute in the first half of financial year 2017 (1HFY17) and with network marketing starting to take shape, the research house has adjusted its earnings forecasts by less than 3%, mainly for bookkeeping purposes.

With Sasbadi actively venturing into network marketing since April 2016, AllianceDBS is positive that it will enable significant contributions to kick in from FY17 onwards. This is because the general market remains unfamiliar with its digital products and a more personalised marketing strategy could lead to better recognition and appreciation of such products by consumers.

To recap, FY16 has been a challenging year for the group as a substantial amount of its resources were spent on tenders for new textbooks for primary and secondary schools, which resulted in a delay in rolling out new reference books from 2QFY16 to 3QFY16, resulting in loss of revenue. On top of that, Sasbadi incurred a higher cost to expedite the proposal for a textbook tender and to build up its network marketing business.

The research house has maintained its “buy” recommendation on Sasbadi with a higher target price of RM1.58, upon rolling forward its valuation base to calendar year of 2017, based on a price-to-earnings ratio of 17 times.