Mixed views on educator Sasbadi’s 9MFY16’s results

KUCHING: Analysts have mixed views on Sasbadi Holdings Bhd’s ( Sasbadi) first nine months of financial year 2016 ( 9MFY16) results, coming within or below expectations.

In a filing on Bursa Malaysia, Sasbadi announced that the group’s profit before tax for the current financial year to date (YTD) ended May 31, 2016 declined marginally by 0.4 per cent to RM17.98 million for the current financial YTD as compared to RM18.05 million for the preceding financial year’s corresponding YTD.

According AllianceDBS Research Sdn Bhd (AllianceDBS Research), Sasbadi’s 9MFY16 earnings amounted to RM12.5 million, which accounted for 67 per cent of its full year earnings forecasts.

AllianceDBS Research deemed the 9MFY16 results to be within expectation.

The research house expected strong contributions from the group’s network marketing business in the fourth quarter of FY16 (4QFY16).

“We have made marginal change to our earnings forecasts mainly for bookkeeping purposes,” it said.

As for the research arm of Hong Leong Investment Bank Bhd (HLIB Research), while revenue came within expectations, Sasbadi’s profit after tax and minority interest (PATAMI) was below expectations accounting for 61 per cent and 66 per cent of its and street full year forecasts, respectively.

Nevertheless, HLIB Research remained positive on longer-term prospects of Sasbadi as the research arm anticipated the company to achieve an organic growth given the potential in the group’s direct selling business (which focuses on sale of Sasbadi’s digital/online educational products).

AllianceDBS Research noted management believes that the potential of Sasbadi’s digital products (currently contributing less than 10 per cent of group revenue) remains underexplored and they have intensified efforts to monetise products by expanding its product portfolio and improvising its marketing strategy to enhance product recognition.

“We understand that since obtaining the network marketing license, management has been actively engaged in building members for the business in May and June.

“We gather that the group has so far recruited about 1,000 members and contributions will start to kick in from July onwards,” the research house said.

The research house was positive of the group engaging in such marketing strategies since it believed that the general market remains unfamiliar with Sasbadi’s digital products and a more personalised marketing strategy could help the consumer to have better recognition and appreciation of such products.

AllianceDBS Research highlighted that in the domestic educational publishing industry, the top three players have less than 25 per cent market share.

“To further strengthen its dominant position in the publishing industry and drive income growth, management is targeting to embark on at least one earnings accretive acquisition annually,” the research house said.

AllianceDBS Research was optimistic that the acquisition of a 70 per cent stake in SUSB, which is a major publishing player in the national Chinese schools (Sekolah Jenis Kebangsaan Cina) with circa 1,300 book titles, will drive FY17 revenue growth by circa 11 per cent.

The research house was also optimistic that the successful acquisition of United Publishing could add about RM1 million to RM2 million per annuam to Sasbadi’s earnings.

AllianceDBS Research further highlighted that Sasbadi is also involved in the distribution of applied learning products (since 2005) and online publishing (since 2011), which contributed less than 15 per cent of FY15 revenue.

The research house expected the contributions from online products to improve going forward with the launch of i- LEARN offline platform since end current year 2015 (CY15) and the license and services agreement ( LSA) with one of Indonesia’s largest book publishers, PT Penerbit Erlangga.

“This would grant the publisher an exclusive and non-transferable license to use its interactive online learning system i-LEARN, and sell the latter’s online learning materials under its platform in Indonesia.

“In return, Sasbadi would receive semi- annual royalties fees based on net sales generated through the online platform in Indonesia,” the research house said.

Overall, AllianceDBS REsearch maintained its ‘buy’ recommendation for the group with an unchanged target price of RM1.40 per share, based on 17-fold FY17 earnings per share.

The research house continued to like Sasbadi as the group is one of the best proxies to the education sector and for its handson management team.