Investment Highlights

• We maintain our BUY recommendation on Prestariang but reduce our SOP-derived fair value to RM1.52 vs. RM2.20 previously. We have trimmed our net profit forecasts by 12-17% for FY18F-FY20F on account of a lower profit margin for the software and training division as we expect contribution from the high-margin training business to be lower going forward. In addition, we have attached a 30% discount to the fair value of Sistem Kawalan Imigresen Nasional (SKIN) in our SOP. This is to reflect possible negative implications arising from a project review, if any.

• We came away from a meeting with management reassured that a termination of SKIN is unlikely as the project is a necessity for the country. We understand that the current immigration infrastructure is already 27 years old and the border control system might be less robust as a result. This could compromise national security.

• In addition, re-appointing a contractor for the project is a hassle seeing that it took Prestariang 4 years of onerous process, conducting feasibility studies, preparing proposals and obtaining approvals from various government units. Nevertheless, given a change in government, most public-private partnership (PPP) projects in general may be reviewed.

• We continue to like Prestariang for:
  • 1) its leading position in the ICT training and software distribution space in Malaysia;
  • 2) the award of SKIN, which is expected to give a significant boost to the group’s earnings in the coming years; and
  • 3) the 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 20x and 22x respectively.

Source: AmInvest Research - 17 May 2018