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StockStalk  |  JANUARY 8, 2016 12:00AM

Sasbadi: Share dilution the way forward?

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StockStalk instory imageLocal publisher Sasbadi Holdings Bhd, famed for textbooks and learning aids, has announced a 10% private placement of shares, as well as a share split at the ratio of two per share. Is the purpose to raise funds, despite the group’s initial public offering less than two years ago?

Business model: Sasbadi Holdings Bhd is a provider of educational materials, with the brand known to many students, with the group focusing on print publishing materials for primary and secondary school education, while also dealing in non-curriculum-based educational materials and general title books.

The group also deals in online publishing for educational materials based on the Malaysian National School Curriculum, including collaborations with Lego, among others, to provide applied learning products for students.

Sasbadi was listed on the Main Market of Bursa Malaysia on July 23, 2014, opening at RM1.75, a 47% premium to the group’s initial public offering price of RM1.19. Raising RM25 million, the group had planned to acquire publishing businesses, as well as a new building to serve as an office and warehouse in the Klang Valley.

On Dec 21, 2015, not even two years after listing, Sasbadi had proposed a private share placement of 10%, which would raise RM6.4 million, as well as a share split, with the ratio of two shares for each existing share.

Shareholders and management: Sasbadi’s largest shareholder remains co-founder Law King Hui, who owns a 20.15% stake in the group. Following Law with a 20% stake is Karya Kencana Sdn Bhd, which is owned by Law along with board members Lee Swee Hang and Lee Eng Sang. Third largest is Lee Swee Hang, who holds a 10.11% individual stake.

Law also serves as managing director for the group, and brings with him over 30 years of publishing experience.

Sasbadi Holdings Bhd 1-year price chart 070116 01Share performance: Over the past year, Sasbadi has definitely accrued value in its shares, going from the vicinity of about RM1.35 at its lowest point in Jan 2015, to pass a high point of about RM2.80 around August 2015, before settling to close at RM2.50 on Jan 7, 2016, a nett gain of about RM1.15 in value over the year.

What analysts think: Following the announcement, Hong Leong IB (HLIB) has revealed that the research house is neutral on both the private placement and the share split, both of which are expected to be completed by the end of June 2016.

Analyst-calls-on-Sasbadi-070116-01“After taking into account the enlarged share base, earnings per share (EPS) for financial years 2016 and 2017 (FY16 and FY17) will be diluted from 16.9 sen to 18.9 sen per share to 7.7 sen to 8.9 sen per share,” noted HLIB, adding that the enlarged base of shares would drop the group’s net asset value to about 45 sen, compared to the existing 74 sen.

It was also noted that 63% of the proceeds (about RM4 million) will be used to finance future acquisitions, while another 19% (or RM1.21 million) will be used to pare down the group’s borrowings.

“Post-exercises, the ex-target price will be adjusted to RM1.30,” noted HLIB, adding that this would improve the group’s trading liquidity, which would make its share price more attractive to local and foreign institutional investors.

AllianceDBS Research was positive in its latest report on the group. It expects the group to deliver earnings growth of 33% and 22% for the group’s FY16 and FY17 respectively, driven by its conventional book publication, as well as the group’s merger and acquisition activities.

“Besides that, we believe that positive news flows/earnings surprises could arise from its regional collaboration(s) and unconventional digital learning products,” added AllianceDBS.

Earnings forecast:

Sasbadi-earnings-summary-070116-01

StockStalk: While the share dilution does indeed make the group’s share price more attractive at RM1.30 compared to the current RM2.50, it should be noted that the share dilution would also affect the EPS of the group, which may be something that those currently in possession of Sasbadi’s shares should take note of.

At the same time, with its current share price at RM2.50, any buy-ins now would be strongly advised against, not only because of the high valuation, but also because of the aforementioned earnings dilution.

However, it should be considered that those investors who buy in before the entitlement date would thus be entitled shareholders, who would then be qualified for the share split exercise. In hand with this, it should be noted that the group does indeed have the experienced Law at the helm, along with a history of government contracts for textbook printing and the like.

Still, weighing against this is the danger of sudden educational reforms by the government, who had only recently rendered all PMR revision books pointless through the abolishment of the examination.

KINIBIZ advises the investor to consider carefully if looking at this particular stock and not to buy in should the entitlement date pass, at least until the conclusion of the exercises. In the end, it remains the choice of the investor, as this is indeed a group that, despite listing less than two years ago, has seen a substantial amount of growth.

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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.



 
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