‘Sasbadi's proposed acquisition of publisher surprising'

KUCHING: Sasbadi Holdings Bhd’s (Sasbadi) proposed acquisition of 70 per cent stake in a publisher was an unsurprising move, in analysts’ view.

In a filing on Bursa Malaysia, Sasbadi’s board of directors announced that the company has entered into a sale and purchase agreement (SPA) to acquire 70 per cent of the issued and paid-up share capital of Sanjung Unggul Sdn Bhd (Sanjung Unggul), comprising 5.6 million ordinary share of RM1 each, for a purchase consideration of RM21 million only subject to the terms and conditions in the SPA.

According to AllianceDBS Research Sdn Bhd (AllianceDBS Research), the purchase consideration was financed via initial public offering (IPO) proceeds (83 per cent) and bank borrowings (17 per cent). AllianceDBS Research noted that the proposed acquisition is expected to be completed before the end of financial year 2015 (FY15) (financial year ended (FYE) August).

The research house further noted that through its subsidiaries, Sanjung Unggul is principally involved in publishing books and educational materials for students in national type Chinese schools (Sekolah Jenis Kebangsaan China).

“Sanjung Unggul’s intellectual property consists of about 1,300 book titles,” it said.

Sasbadi also announced that there is a revision to the utilisation of its IPO proceeds, where the RM7 million initially slated to be used for acquisition of an office cum warehouse building will instead be used to partly finance its proposed acquisition of publishing businesses, the research house noted.

The proposed acquisition was not a surprise to AllianceDBS Research since management has in the past indicated their intention to venture into the Chinese publishing business.

The research house also deemed the purchase consideration of RM21 million, which represented 12-fold price earnings (PE) and 2.2-fold P/adjusted book value (BV) for FY ended August 31, 2014, to be fair.

AllianceDBS Research has already included potential earnings contributions from such an acquisition into its earnings model.

Nonetheless, the research house did foresee downside risk to its FY15 earnings forecasts given the uninspiring third quarter of FY15 (3QFY15) results recently reported and a potentially soft 4QFY15.

“We are keeping our earnings unchanged pending a meeting with management,” it said.

As such, AllianceDBS Research maintained its ‘hold’ recommendation for the group with an unchanged target price of RM2.47 per share based on discounted cash flow (DCF) valuation.

The research house’s valuation assumed 9.5 per cent cost of equity and 1.5 per cent terminal growth.