Investment Highlights

• We reiterate our BUY recommendation on Prestariang with an unchanged fair value of RM2.20/share based on sum-ofparts valuation. We have fine-tuned our FY18F-FY20F earnings by 0-1% for housekeeping reasons.

• We came away from a meeting with management reassured that the company is set to register bumper earnings from FY18F onwards, driven mainly by the development of Sistem Kawalan Imigresen Nasional (SKIN). The key takeaways from the meeting are:

1. Management indicated possibilities of completing the development phase of SKIN ahead of schedule – 2.5 years in lieu of 3 years. This would allow the group to recognise SKIN earnings earlier than expected. However, we are keeping our assumption for now.

2. We gathered that there is no need to issue new equity to fund the project, as the group has sufficient internal funds and debt headroom. This would mitigate the risk of an unexpected cash call.

3. Management dismissed the concern of a termination of SKIN as any cancellation would result in a huge compensation for Prestariang. In fact, the government is showing support for the project by assigning a group of workers to assist with the project.

4. Regarding its potential collaboration with Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN), the group plans to develop a job-matching platform that matches student borrowers with jobs that suit their profile and subsequently provides them with pre-work training. As a start, PTPTN aims to place 10,000 unemployed student borrowers via the platform, and has set aside a RM20mil budget for the initiative this year. While this appears insignificant at the turnover level, we believe it would generate a handsome bottom line in FY18 due to decent margins.

• To sum up, 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 10x, while its regional comparables, Chinasoft International and Hexaware Technologies, are trading at 19x and 23x respectively.

Source: AmInvest Research - 18 Apr 2018