Investment Highlights

• We reiterate our BUY recommendation on Prestariang with unchanged forecasts and fair value of RM2.08/share based on a sum-of-parts valuation.

• We met up with management and learnt that Prestariang is considering various alternatives for the equity funding of SKIN on top of a placement exercise at the group level.

• After clarifying with management, we understand that Prestariang Services (PServices), currently a 70%-owned subsidiary of the group and a vehicle for SKIN, is not a sole-purpose, one-off vehicle. In addition to managing SKIN, the subsidiary will be actively seeking new contracts, evolving deep practices in key technology areas and expanding into new geographical markets.

• In this case, PServices could be treated as a going concern and high-growth entity, which justifies a P/E valuation metric or DCF with a terminal value (indefinite life) as opposed to a 15-year DCF (definite life) that we currently adopt. Applying a 3% terminal growth rate and 9% discount, we estimate the valuation of PServices at over RM1bil vs. our original estimate of ~RM400mil, which was based on a 15-year DCF.

• Based on the above, Prestariang's SOP-based fair value would be elevated to circa RM3.00/share. However, we are leaving our forecasts and fair value unchanged until the financial close of SKIN is attained. Currently, we gather that the group is in discussion with several institutional investors, and is in the midst of securing the best offer(s).

• We continue to like Prestariang due to: 1) its leading position in the ICT training and software distribution space; 2) SKIN, which is expected to beef up net profit by more than 8x from FY16 to FY18F; 3) its portfolio of products and services, such as the recent investment in OpenLearning and other advanced technology platforms like EduCloud and SKIN, which will instill confidence and boost UniMy’s intakes going forward; and 4) PServices' planned expansion into overseas markets, which offers tremendous revenue opportunities.

Source: AmInvest Research - 9 Oct 2017