(Dec 22, RM2.56)
Maintain buy with a target price (TP) of RM2.80: Sasbadi Holdings Bhd has proposed a private placement and a share split of every one existing share into two shares in Sasbadi.
As at Aug 31, 2015, the issued and paid-up share capital stood at RM63.5 million, comprising 127 million units.
Sasbadi will undertake a placement of up to 10% or 12,700 new shares and is expected to raise gross proceeds of up to RM6.4 million.
The proposed private placement and share split are expected to be completed by the second quarter of calendar year 2016 (CY16).
The rationale for the share split is to enhance the marketability and liquidity of the shares, making them more affordable and enabling a larger group of investors to take part in the growth story of Sasbadi.
After taking into account the enlarged share base, earnings per share (EPS) for financial year 2016 (FY16) and FY17 will be diluted from 16.9 sen and 18.9 sen to 7.7 sen and 8.9 sen respectively.
Based on the enlarged base of 279.4 million shares and the utilisation of placement proceeds, the net asset value is estimated at 45 sen (existing: 74 sen).
About 63% of the proceeds will be utilised to finance future acquisitions, while 19% will be used to pare down borrowings.
Post-exercises, the ex-TP will be adjusted to RM1.30. This would improve Sasbadi’s trading liquidity, thereby resulting in its share price becoming more attractive to local and foreign institutional investors.
Risks include not winning the textbook contract from the education ministry; migration towards the online platform; a spike in paper prices; and changes in the national curriculum and educational policies.
We like Sasbadi due to its strong annual free cash flow, high-growth rate and unique education exposure, which is closely linked to the country’s education system.
We maintain our “buy” call on Sasbadi with an unchanged TP of RM2.80, based on an unchanged price-earnings ratio (PER) multiple of 15.5 times CY16 EPS. Our targeted PER is based on a 55% discount to the education sector’s average in view of its relatively small market capitalisation and low liquidity. — HLIB
Research, Dec 22
SASBADI (5252) - Sasbadi’s private placement to raise proceeds of up to RM6.4m
http://www.theedgemarkets.com
