Prestariang  announced  yesterday  that  it  has  inked  an  MOU  with  MIE  Corp Holdings S/B to set up a joint-venture company for the supply of manpower to Malaysia‟s  Oil  &  Gas  (O&G)  industry,  particularly  for  the  RAPID  project  in Johor. We  laud  the  move  as  it  will  not  only  create  career  placement  for  its O&G downstream students, it will also help generate ancillary income for the Group in the future. We reduce our TP from RM1.81 to RM1.62 however, after adjusting  for  our  lowered  FY14-16  earnings  forecasts  due  to  the  delay  in replenishing  its  existing contracts and  the  longer period taken to turn  around its education arm. Our Neutral call remains unchanged.   

Salient  details  of  the  MOU.  According  to  the  Memorandum  of Understanding  (MOU),  Prestariang  and  MIE  Corp  Holdings,  a  local consortium  partner  together  with  CTCI-Chiyoda  JV  from  Taiwan  and Synerlitz (Malaysia) S/B, who is also a successful tenderer of a particular package under the Refinery and Petrochemicals Integrated Development (RAPID) project,  agree  to establish a 51: 49 joint-venture  (JV)  company. It will undertake the setting-up, operation and management of a business entity  to  source,  acquire,  train  and  supply  skilled  and  semi-skilled workers (both Malaysian and foreign) in relation to the RAPID project in Pengerang, Johor and also also to the industry in general. Other studies include  the  assessment  of  demand  for  skilled  &  semi-skilled  workers, cost  of  hiring  in the market, current  supply  to the market,  work  permit, health  screening,  CIDB  certificates,  accommodation,  logistics,  training, placement arrangement and fee-based payroll structure.

Creating  value  chain  for  the  O&G  manpower.  Currently,  the  Group provides  training  programmes  for  the  O&G  downstream  industry  in Johor.  The  establishment  of  the  JV  will  not  only  help  improve  the employability  of  its  trainees  and  expand  the  the  industry  net work,  we believe it will also generate ancillary income for the Group in the future given the “one-stop” service for RAPID  project  workforce and also less worries for the RAPID players, who need at least 10,000 workers.

Revising  our  earnings  forecasts  lower,  to  account  for  the  delay  in replenishing its existing contracts as well as the longer time taken to turn around  the  education  arm  which  has  been  a  drag  on  the  company‟s earnings. Thus, we revise our earnings forecasts for FY14-16 by 10%-19%.  We  expect  the  2H  earnings  to  be  relatively  weaker  compared  to last year. We maintain our Neutral call with a lower TP of RM1.62.

Source: PublicInvest Research - 4 Nov 2014