Prestariang’s share price has been in the limelight recently as it tumbled more than 51% over the last 1 month due to various uncertainties surrounding the companies amid heavy selling pressure from institutional investors, namely, Kumpulan Wang Persaraan (KWAP) and AIA. While having recovered admirably in recent days, we are nevertheless ceasing coverage on the stock given the poorer earnings outlook due to an anticipated ballooning in its finance costs, continuous bleed in its education segment and it bread-and butter income stream (software) under threat. Due to internal resource allocation, we are ceasing research coverage of Prestariang. Our last call on the stock is Neutral with a TP of RM1.19.

• Its core contract under spotlight. Its RM3.5bn National Immigration Control System (SKIN) concession project with the Home Ministry, which is under a public-private partnership (PPP), has become a subject of speculation as it is reportedly under review by the government, with some adjustments to the scope of work leaving it not likely to remain in the current format.

• Progress of the SKIN project. The 15-year SKIN concession project, which officially started on 25 April this year, is expected to take three years in the construction phase. It will replace the current immigration system called MyIMMS, and is expected to provide annual recurring income of RM295m from year 4 to year 15 during the maintenance and operational period. It is currently under the business process reengineering stage and is about 10% completed to-date. To fund the construction, Prestariang has recently secured RM978m borrowings from Bank Pembangunan.

• Trading at 25%-29% discount to the SKIN project value. Based on our forecasts, the SKIN project is worth RM1.08/share for the 70% equity stake under Prestariang. Based on the current share price of RM0.50, the market is reflecting at least 25%-29% cut in the RM3.5bn project value.

• Moving into bigger campus. The education arm, under UniMy, has moved into a bigger campus with a 240,000 sq ft at the same rental of RM250k/mth. It currently has about 550 students and targets at least 1,000 students to break even at EBITDA level. To run the campus at a more efficient level, the company has recently appointed a new CEO and Vice Chancellor to undertake the UniMy management. We also understand that the big jump in 1HFY18 administrative expense, up 64.7% YoY, was mainly due to the aggressive marketing activities under the campus recruitment drive.

• Ceasing coverage. Investors should no longer depend on any of our previous financial forecasts for Prestariang in making investment decisions, nor infer any adverse opinion as a result of our decision to cease coverage.

Source: PublicInvest Research - 7 Nov 2018