Investment Highlights

• We reiterate our BUY recommendation on Prestariang with unchanged forecasts and fair value of RM2.20/share based on sum-of-parts valuation.

• Prestariang announced that it has received a letter from the Ministry of Home Affairs (MoHA) today confirming that it has fulfilled all the conditions precedent in the concession agreement (dated 18 July 2017) on Sistem Kawalan Imigresen Nasional (SKIN). MoHA accordingly declares 11 April 2018 as the effective date of the concession agreement.

• We draw comfort from the announcement as the project is expected to be the key earnings driver for Prestariang.

• To recap, SKIN is a RM3.5bil project in relation to the implementation of an integrated and comprehensive core immigration system at the national border. The project is a game-changer for the group and the main growth driver going forward.

• While payments are to be made only in year 4, we note that the group can book the revenue from SKIN based on the accounting standards of IC Interpretation 12 (IC 12). Given this, the group is set to register over 3x revenue and net profit growth in FY18F, which we believe is an inflection point for the group.

• 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 9x, while its regional comparables, Chinasoft International and Hexaware Technologies, are both trading at 22x.

Source: AmInvest Research - 10 Apr 2018