Sasbadi to record better earnings in 2QFY18

KUALA LUMPUR: Sasbadi Holdings Bhd (Sasbadi) is expected to record better results should come in stronger in the second quarter of the financial year 2018 (2QFY18), driven by higher demand for books due to the start of the new school year.

In a report, the research arm of AmInvestment Bank Bhd (AmInvestment) opined, “The group’s results should come in stronger this second quarter (December 2017 to February 2018) as its core business is buoyed by the seasonally higher demand for books, marked by the start of a new school year.”

However, it also believed that it would a challenge for Sasbadi to strengthen the foundation of its publishing business which still accounts for nearly 90 per cent of revenue.

“The seasonally weaker fourth quarter (June to August) for its book sales is where defences are most pivotal in order to avoid falling into the red again.

“The group said it is cognizant that retail market conditions could remain weak this year and it is more aggressively developing non-core units and market segments.

“Management had previously emphasized it is shifting to collaborations from its previous focus of mergers and acquisition (M&A) in a bid to save costs and leverage on its publishing expertise,” the research team noted.

Despite the possible challenge, AmInvestment remained positive on its proactive stance to find new revenue streams and bring down its fixed costs.

“However, we emphasize that these new ventures still carry inherent risk and would take time before they become a formidable component of the group’s earnings,” it cautioned.

Meanwhile, AllianceDBS Research Sdn Bhd (AllianceDBS Research) maintained a bullish view on Sasbadi despite its flattish results for FY17.

“After a disappointing FY17, we foresee that the group’s earnings will improve substantially in the upcoming quarters and we are optimistic that its earnings will rebound this year, following management’s recent actions in streamlining cost and enhancing its revenue growth trajectory,” it opined.

It pointed out that Sasbadi reported 1QFY18 core earnings of RM4.5 million (an increase of 2.3 per cent y-o-y, an increase of more than 200 per cent q-o-q).

“Although the bottomline for 1QFY18 only improved marginally y-o-y, we view the results positively since the 1QFY17 figure was boosted by non-recurring income,” it said.

It explained that the stronger earnings y-o-y were mainly driven by strong growth from its organic print publishing business, higher contributions from its networking marketing operations, and 13 per cent y-o-y reduction in its operating expenses.

“The improvement in its organic business and lower operating expenses illustrate that management’s recent strategies to streamline cost and enhance its revenue growth trajectory are starting to bear fruit,” it added.

Nevertheless, while it viewed the 1QFY18 results positively, it also pointed out that its previous earnings forecasts were overly optimistic.

“As forewarned in our previous report, despite our optimistic view of the group’s prospects, we do acknowledge that given the small base established in FY17, the group will need to grow its revenue by 39 per cent and earnings by 187 per cent to meet our previous FY18 earnings forecasts, which we deem to be stretch targets at this juncture.

“Besides that, the steep drop in its organic publishing business in the 4QFY17 could indicate that its impending recovery could take a longer time than we had expected,” it explained.

As such, AllianceDBS Research said it cut its FY18 to FY19 earnings estimates by about 15 per cent, mainly to account for lower organic growth from its publishing business, and higher finance cost.

It maintained a ‘buy’ call on the stock while AmInvestment maintained its ‘hold’ call.