KUCHING: Educational materials publisher Sasbadi Holdings Bhd (Sasbadi) is set to see stronger contributions from its network marketing business.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) noted that since obtaining the network marketing licence in mid-2016, Sasbadi has been actively expanding the business to further monetise its digital products.
“We understand that the group has so far recruited more than 3,000 members. We are positive that contributions from its network marketing business has improved to RM1.2 million in the first quarter of financial year 2017 (1QFY17) from RM700,000 recorded in 4QFY16,” it said.
“We are positive of the group engaging in such marketing strategies since we believe that the general market remains unfamiliar with its digital products and a more personalised marketing strategy could achieve better recognition and appreciation of such products by consumers.”
Based on its earnings model, AllianceDBS Research expected RM5 million contributions from its network marketing business for FY17, leaving room for further earnings upgrade for Sasbadi.
Meanwhile, on Sasbadi’s 1Q results, AllianceDBS Research said the company registered results of RM4.3 million in core earnings, a substantial improvement compared with core earnings of RM2 million recroded in 1QFY16.
“The stronger 1Q results were supported by a 48 per cent increase in its topline growth, compared with the corresponding period last year.
“This meets about 18 per cent of our and consensus full- year earnings forecasts, which we deem to be within expectations given that 1Q is a seasonally weak quarter for the group,” it said.
It also pointed out that although 1Q ending November is traditionally a weak quarter for the group’s educational publishing business due to school holidays and completion of exam period, the group’s 1QFY17 core earnings were boosted by government contracts and network marketing.
It further noted that Sasbadi’s earnings were lifted by revenue recognition from RM9.4 million textbook publishing contract secured, textbook reprinting contract, provisions of Lego Education robotics sets to primary and secondary schools amounting to RM3.6 million, and increased contributions from network marketing.
Besides that, AllianceDBS Research noted that contributions from its online products are expected to improve going forward with the launch of the i-LEARN offline platform at end-2015 and the licence 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 licence 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 royalty fees based on net sales generated through the online platform in Indonesia,” it added.
Overall, AllianceDBS Research viewed that Sasbadi has a healthy balance sheet. It noted that Sasbadi’s was in a net cash position as at end-November 2016.
“Nonetheless, we do not discount the possibility that the group may engage in capital-raising exercises should it undertake a sizeable acquisition in the future,” it said.
“Sasbadi serves as one of the best proxies to the Malaysian education sector, as it is a dominant player in the domestic educational publishing industry with circa 10 per cent market share.
“The group is well managed and enjoys high returns on equity (ROE) and superior profitability, supported by a lean operating structure and complementary business models.”