• Prestariang has received the letter of award from Lembaga Hasil Dalam Negeri Malaysia for the supply of Microsoft software licences, products and services under the Master Licensing Agreement 3.0 (MLA 3.0) from 1 March 2018 to 28Feb 2021.

• We understand the value of RM38.2mil under this award is part of the RM222.6mil contract awarded in January in relation to the supply of Microsoft products to all government agencies. Therefore, there is no impact on our earnings forecasts.

• The full contract is projected to contribute circa RM74.2mil to the group's software services division annually. Historically, the division has registered revenue of RM94.0-RM125.3mil for FY15-FY17, and MLA typically constitutes 60-70% of the division's revenue.

• We are projecting a 17% growth for the division in FY18F, underpinned by the contract, and Prestariang's plans to introduce new licences/services from prominent software partners like Adobe and IBM.

• The software services division made up 57%-89% of group revenue for FY15-FY17. Its revenue concentration has reduced significantly in FY17 (to 57%) due to the contribution from Sistem Kawalan Immigresen Nasional (SKIN), and is expected to reduce further to circa 30% once SKIN revenue fully kicks in.

• 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 8.7x, while its regional comparables, Chinasoft International and Hexaware Technologies, are trading at a forward PE of 20.5-20.7x.

• Maintain BUY with fair value of RM2.20/share.

Source: AmInvest Research - 30 Mar 2018