10 things I learned from the 2019 Sasbadi AGM

Sasbadi Holdings Berhad is a Malaysian-listed company that specialises in providing education solutions. Many Malaysians, including me, grew up carrying tons of textbooks and workbooks that were published by Sasbadi to school. Before this, little did I know that Sasbadi is a public-listed company on Bursa Malaysia.

Established in 1985, Sasbadi has a fair share in the early education and national school products market in Malaysia. Over the years, Sasbadi has grown to become a diverse education solutions provider of academic and non-academic printed materials, digital and technology-enabled products, applied learning tools, and a network marketing business.

Source: Google Finance

In 2018, Sasbadi’s stock share price fell by 62.7% from RM0.59 to RM0.22. As the publishing industry is increasingly disrupted by digitisation, I wondered what Sasbadi’s outlook was for 2019 and beyond. I took the opportunity to attend its AGM to find out more about its growth and reminisce about the past.

Here are 10 things I learned from the 2019 Sasbadi AGM:

1. Revenue decreased by 5.7% from RM93.1 million in 2017 to RM87.8 million in 2018. The decline in revenue is due to the Ministry of Education’s (MoE) directive to ban workbooks for Year One to Year Three students, and restrict students in Year Four to Six to one workbook for each of the five core subjects. Nevertheless, Sasbadi’s revenue has been increasing at a compound annual growth rate (CAGR) of 8.1% from 2010 to 2018.

Source: Sasbadi annual reports

2. The revenue generated by the digital and network marketing segment increased from RM6.1 million in 2017 to RM8.4 million in 2018.The hike was equivalent to an annual three percentage-point increase in the segment’s contribution to the Group’s revenue. The applied learning products (ALP) and Science, Technology, Engineering, and Mathematics (STEM) education segment registered a decline in its revenue contribution due to the loss of non-recurring contracts from the supply of Lego robotics sets and textbook reprints which were completed in 2016 and 2017 respectively.

Source: Sasbadi 2017 annual report
Source: Sasbadi 2018 annual report

3. Net profit decreased by 75.0% from RM8.0 million in 2017 to RM2.0 million in 2018. Sasbadi’s net profit peaked in 2016 and has been on a downward trend since. Reasons for the drop in revenue include higher finance costs, provision for impairment of inventories of RM4.0 million, as well as lower revenue. Sasbadi has tried to keep its expenses in check by lowering its sales, general, and administrative expenses in 2018 from the previous year. A healthier bottom line was achieved in its recent 1Q 2019 results as Sasbadi recorded an 84% increase in net profit as at 30 November 2018 compared to the corresponding quarter in 2017.

Source: Sasbadi annual report

4. A shareholder highlighted that Sasbadi’s revenue had been flat for the past five years (refer to the graph under Point 1). The shareholder anda representative from Minority Shareholders Watch Group (MSWG) wanted to know more about Sasbadi’s growth plans for the future.Managing director, Law King Hui, replied that Sasbadi would focus its business mainly in Malaysia. It would continue to maintain a good relationship with MoE through various initiatives such as the National Robotics Competition. He reckoned that the publishing industry would benefit from several MoE initiatives ranging from the 10-year National Reading Decade 2021-2030 programme to calls for mandatory schooling until Form Five. In response to another query from the same shareholder, Law applauded the Malaysian federal government’s decision to maintain a transparent open tender for projects although the new norm caused hiccups in recent textbook production.

5. MSWG was interested to know more about Sasbadi’s performance in its export business. Law mentioned that they would identify suitable partners in foreign markets with large populations such as China, Vietnam, and Pakistan for its exported content business. Through partnerships, Sasbadi earns passive royalty income by providing partners with intellectual property rights to print, market, and sell Sasbadi’s products in foreign markets. The potential growth is hard to predict as an agreement is signed based on the partner’s perceived strength. As at 31 August 2018, Sasbadi’s revenue contribution from exported contents stood at RM200,000 in 2018. Revenue obtained from the export market will cushion the impacts of seasonality patterns and the shrinking primary school workbook market on the business.

6. A shareholder commented that no dividend was paid out in 2018. Due to Sasbadi’s lacklustre financial results in 2018 and the management’s prudent approach towards spending, Law answered that they would wait for the soft retail market to bounce back before deciding to resume paying a dividend. Sasbadi will distribute half of its yearly earnings as dividends to shareholders in accordance with its policy if it has sufficient funds for operations.

7. MSWG highlighted the RM4.0 million provision for impairment of inventories in 2018 and asked about the measures taken by the management to prevent a similar occurrence in the future. Law admitted that they were not stringent enough in the past two years. They printed more titles and wanted to grow faster based on the general positive economic outlook. Yet school grants were cut and money was not trickling down the system. Consequently, the economy did not recover and Sasbadi’s inventories piled up amidst the poor retail sentiment. Sasbadi has begun to take measures by selling slow-moving titles through discounted channels including their book fairs and Big Bad Wolf Books. Consumers will still buy the books although they are slightly outdated provided that the content remains relevant and the price is affordable. Moving forward, Sasbadi will be more cautious and better manage the risk of overproduction and sales returns so that inventories will not pile up.

8. MSWG also highlighted the 111.8% year-on-year increase in impairment losses on trade receivables to RM3.6 million in 2018. Law explained that local businesses were affected by the poor retail sentiment in the past two years including Sasbadi and its customers. A customer had a slow take-off and faced difficulties selling the slow-moving titles. Consequently, the customer did not have sufficient cash flow to facilitate prompt payment. Moving forward, Sasbadi will adopt more aggressive strategies to collect receivables.

9. Sasbadi’s finance costs incurred from bank overdrafts grew from RM1.1 million in 2017 and RM1.4 million in 2018.To reduce the reliance on bank overdrafts, Sasbadi will become more aggressive in terms of debt collection and consider selling non-core assets including the apartment units in Negeri Sembilan to generate cash flows internally. They may also undertake an equity funding exercise depending on market conditions after considering existing shareholders’ interest. The last potential resort raised shareholders’ alarms as earnings per share would likely be diluted.

10. As the print publishing segment accounted for more than two-thirds of Sasbadi’s revenue in 2017 and 2018, MSWG enquired about the outlook of the segment given the fact that Information and Communications Technology (ICT) for learning and teaching is gaining traction in Malaysia. According to Law, the challenges of implementing ICT-centric education include connectivity issues in rural areas, affordability of smart devices, and cost of replacement for lost devices. He considered the education business a rather defensive industry and the print publishing segment would still be relevant in the near term before the challenges are tackled. I was a bit sceptical when the managing director talked about computer illiteracy among parents, which I think is among the minority as the internet user population in Malaysia surpassed 24 million in 2017. Sasbadi also invested in ICT-related education solutions by developing in-house augmented reality (AR) technology. For instance, i-LEARN Ace Junior was launched in August 2018 in response to the workbook ban. It is a collaborative and interactive learning engagement platform between teachers, students, and guardians that targets Year One to Three students. During a break, Law also enthusiastically showcased to a small group of shareholders how Sasbadi’s AR technology could make learning fun using a smartphone.

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Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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