According to the contract terms, around RM4mil worth of books would need to be delivered by 1QFY18-2QFY18, before the start of the 2018 national school season.
“Assuming a 10% pretax profit margin, Sasbadi would recognise a pretax profit of RM400,000 in 1QFY8/18 or a net profit of RM300,000.
“We expect this to boost the company’s FY18 forecast earnings per share (EPS) by only 0.5%. The remaining RM2.9mil worth of order is to be delivered by 1QFY19, which we estimate would boost its FY19F EPS by only 0.2%,” CIMB said in a report.
Sasbadi announced it has secured a contract from the Education Ministry to print three textbooks (mathematics, arts education and Chinese language) for the Year 2 Chinese national-type primary schools throughout Malaysia.
“This contract win is not a surprise to us. The company typically wins some textbook orders annually, and since it bought a 70% stake in Sanjung Unggul in August 2015, it has been winning more textbook orders for the Chinese national schools,” CIMB said.
The research house noted that Sasbadi’s monthly iLearn-Ace’s multi-level marketing (MLM) sales have been stable at around RM500,000.
“We previously expected MLM sales to pick up from January onwards with the start of the national school season; however, it seems the company may need a little more time to boost iLearn-Ace’s MLM sales. We believe Sasbadi is still tweaking its sales strategy to help boost sales,” it added.
Sasbadi is expected to announce its 2QFY17 results in end-April. Seasonally, its second quarter is the strongest quarter of the year as the school season starts in early-January which falls in the middle of the Dec-Feb quarter.
“We maintain our EPS forecasts and target price, based on a 20% discount to FY18 forecast 16 times price-to-earnings to reflect its small market cap,” CIMB said, adding that Sasbadi remained an “add” with a target price of RM2.82.
It said potential re-rating catalysts were stronger-than-expected iLearn-Ace sales over the next few quarters and M&As while continued weakness in iLearn-Ace sales was a key downside risk.