KUALA LUMPUR: Bearish sentiment in the local stock market and doubts about the health of Malaysia’s economy may have dampened consumer spending and investor appetite for risks in recent times, but Sasbadi Holdings Bhd believes that it is somewhat insulated from the economic headwinds and still has room for growth.

Its group managing director Law King Hui said consumers will continue to spend on education-related materials even as they tighten their purse strings.

“Education is a birth right. Most parents, even in the event of an economy downturn, do not cut down on their education [spending]. Education is very low on the list of things to strike out,” he told digitaledge DAILY in an interview.

“We have gone through several recessions in the last 30 years and each time, we were not affected … I do not see anything different from this [slowdown]. We will still see [earnings] growth, maybe just not as fast as we want it to be,” Law added.

Sasbadi publishes national syllabus-based textbooks and revision books which are widely used by Malaysia’s primary and secondary school students.

Law said with Sasbadi’s operations based entirely in Malaysia, it is shielded from much of the global economic volatility with the exception of its exposure to paper costs. Paper is a commodity that is traded in US dollars and accounts for up to 40% of Sasbadi’s manufacturing costs.

As the ringgit slides further against the greenback, Sasbadi’s manufacturing cost will correspondingly increase.

However, Law said the weakening of the ringgit is unlikely to impact Sasbadi in the short term as it has locked in 80% of its paper needs for 2016.

“From 2017, if the ringgit remains weak, we would pass the costs to consumers, but responsibly.

“We are only concerned if we are caught, that is, if a product has been launched and priced and we cannot change the pricing. Nonetheless, this should not happen because we always have a buffer [paper] stock and we will price our products accordingly,” Law explained.

In the meantime, a spate of recent acquisitions shows that the publisher is still in the mood for inorganic growth.

This month it announced its latest acquisition, a 70% stake in Sanjung Unggul Sdn Bhd, a publisher catering to students in national-type Chinese schools, for RM21 million. The acquisition marked a significant breakthrough for Sasbadi who had made previous unsuccessful attempts to enter the tightly-held Chinese language market here.

“The Chinese [publishing] market is operated by long established companies. Their history goes a long way back, the Chinese culture and many other factors besides business ones come into play. The industry operates within a closed ecosystem and is resistant to newcomers,” said Law.

“As a public listed company, we have the ability to acquire the segment. Sanjung Unggul is a very good acquisition in my view. It has The Malaya Press Sdn Bhd, one of the oldest publishers in the country. The intellectual property (IP) and the market share that they own are significant,” he added.

More importantly, the acquisition will offer Sasbadi a new market and create a new income stream.

For the financial year ended Aug 31, 2014 (FY14), Sanjung Unggul recorded a net profit of RM2.5 million on revenue of RM17 million. Sasbadi, on the other hand, raked in RM12.25 million in net profit and RM79.48 million in revenue.

Ceteris paribus, Sasbadi could be looking to add 17% to its top line from the Sanjung Unggul acquisition alone, Law said.

Some of Sasbadi’s other purchases since its initial public offering (IPO) in July last year include the acquisition of IP rights for 240 titles for teacher education and 29 titles for secondary school education from Penerbitan Multimedia Sdn Bhd for RM1 million in October 2014 and PMI Education Sdn Bhd for RM2.6 million. PMI Education operates Mantissa College, which runs 18 tertiary education programmes, ranging from diploma to doctorate courses.

Law said Sasbadi is not stopping its acquisition trail just yet.

The group has identified publishers of general titles as new acquisition targets and talk for a deal could be underway as soon as next month.

The speed at which Sasbadi is moving to seal these deals, however, raises investors’ concerns that the group is growing too fast too soon. Its IPO proceeds of RM25.23 million meant to also cover the purchase of a new office cum warehouse and publishers of general titles, have been used up.

But Law gave assurance that Sasbadi is not “taking on too much”, adding that as a publishing company, it is more interested in the IP of its targets and not their hard assets.

“That is why mergers and acquisitions work for us. We incur very little additional cost post-acquisition and we can churn out revised products very quickly. We can leverage their content for our digital platform, turn it into e-books or preload it into a tab. We can do this very quickly,” he said.

Sasbadi’s gearing after the Sanjung Unggul buy is still at a “reasonable” 0.17 times. As such, Law said future acquisitions can be funded through debt financing or equity as liquidity of Sasbadi shares can still be improved.

Meanwhile, Sasbadi is aiming to penetrate the regional market in two years using its online platform called i-Learn Online Learning System.

The platform has already been licensed to a partner in Indonesia, in exchange for a one-off licensing fee and future royalty of 8% based on net sales. However, earnings from the venture have yet to show as the product has not been launched.

“We are eagerly waiting to see the success in Indonesia. If it is successful, it would be very easy for us to sell it regionally. We have started talking to publishers in the Philippines and Vietnam,” said Law.

Year to date, Sasbadi’s share price has risen 56.76%, outperforming the FBM KLCI’s 10.59% decline. The stock closed unchanged at RM2.32 last Friday, bringing a market capitalisation of RM294.64 million.

This article first appeared in digitaledge Daily, on August 24, 2015.