Netflix shares fell more than 8% in after-hours trading , as a disappointing second-quarter outlook and leadership changes outweighed otherwise solid first-quarter results. Weak Guidance Sparks Sell-Off Netflix forecast Q2 earnings of US$0.78 per share , below analyst expectations of US$0.84 , while revenue is projected at US$12.57 billion , missing the US$12.64 billion consensus . The weaker guidance raised concerns over near-term growth momentum , triggering a sharp negative market reaction. Strong Q1 Performance Fails to Impress For the first quarter: Revenue rose 16% YoY to US$12.25 billion (above estimates) Earnings surged 86% to US$1.23 per share However, earnings were boosted by a US$2.8 billion one-off termination fee , reducing the quality of underlying growth. Operating margin improved to 32.3% , but still came in below expectations (32.4%) , further dampening sentiment. Rising Costs and Strategic Sh...
Retain BUY with unchanged target price (TP) of RM1.63
News/ Comments
- Sasbadi Learning Solutions, a wholly-owned subsidiary of Sasbadi Holdings Bhd, has signed a Memorandum of Agreement (MoA) with University of Malaya (UM).
- The MoA was signed for the collaborative research and product development of Robotics Education in science, technology, engineering and mathematics (STEM) education.
- As Malaysia’s oldest university, UM has a top-notch reputation amongst Malaysians. UM is working on providing its students with fast-track access to become equipped with advance knowledge and skills on computer science and information technology.
- We are positive on the MoA as the implicit endorsement from UM will further put Sasbadi in the limelight as a coveted applied learning products provider. We believe the MoA is a step in the right direction for Sasbadi as it grows and adapts to the changing education landscape, putting focus on STEM education. A successful collaboration would also widen Sasbadi’s revenue base, however, we opine that any contribution from this MoA, which will be shared with UM, will take some time to kick in.
- We remain positive on Sasbadi’s outlook as this latest news, coupled with the group’s contract with MoE to supply Lego Education robotics products to primary and secondary schools in Malaysia, will cement Sasbadi’s position as the sole distributor of the Lego Education robotics set in Malaysia and the solutions provider for STEM education. In the immediate term, we expect higher contribution from its online products via its direct sales/ network marketing channel (Mindtech Education) as it has already broken even and is expected to gain momentum. We also expect higher contribution from its subsidiary Sanjung Unggul as the delayed textbook reprint will come in 1QFY17.
Risks
- (1) Accelerated migration towards the online platform; (2) Spike in paper prices; (3) Changes in National Curriculum and educational policies; (4) Execution of its direct selling segment and (5) Losing the textbook contract from MOE.
Forecasts
- We maintain our earnings forecast. However, we will keep a close watch on this development and make necessary adjustments once financial impact can be ascertained.
Rating
BUY (↔)
- We like Sasbadi due to its strong annual FCF, high growth rate, its innovativeness in creating products that cater to tech-savvy youth and unique education exposure which is closely linked to the country’s education system.
Valuation
- Reiterate BUY with unchanged TP of RM1.63 (unchanged P/E multiple of 18x CY17 EPS). Targeted P/E is based on a discount of 40% to education sector. Valuation is justified in our view, due to Sasbadi’s relatively small market capitalisation and low liquidity.
Source: Hong Leong Investment Bank Research - 05 December 2016
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