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.

• Prestariang has received the letter of award from the Ministry of Finance for the supply of Microsoft software licences, products and services under the Master Licensing Agreement 3.0 (MLA 3.0) to all government agencies and Institut Latihan Awam (public training centres) in Malaysia. The contract has a total value of RM222.6mil, and is valid from 1 Feb 2018 to 31 Jan 2021.

• The contract is an extension of MLA 2.0, which was first awarded as a three-year contract in Jan 2015, with retrospective effect from 1 Feb 2015 to 31 Jan 2018. We note that MLA 3.0 included a new customer (Institut Latihan Awam) with new added scope of services.

• We are keeping our forecasts as the development has already been accounted for. Nonetheless, we are positive on the announcement as the group continues to prove execution capabilities in its core businesses.

• For FY18F, we are projecting a 25% growth in Prestariang's software management revenue, premised on its plans to replicate the success of its MLA contracts with other prominent software partners like Adobe and IBM.

• Apart from increasing product mix, Prestariang also intends to move up the value chain by offering more value-added services such as cloud computing and other analytics to complement its licensing distribution business.

• We continue to like Prestariang for its: 1) leading position in the ICT training and software distribution space in Malaysia; 2) the award of SKIN, which is expected to beef up net profit by more than 8x from FY16 to FY18F; and 3) recent tie-up with Alibaba Cloud and Conversant Solutions to develop EduCloud, which provides potential new revenue streams.

• At the current price, Prestariang appears undervalued for a solutions provider. The company currently trades at a 1- year forward PE of 12x, while its regional comparables, Chinasoft International and Hexaware Technologies, are both trading at 19x.

Source: AmInvest Research - 30 Jan 2018