• 2Q17 core earnings jumped 80.9% qoq and 50.9% yoy respectively to RM5.8m. This was driven by the Software & Services and Academy segments while the Education unit saw and lower losses in the quarter.

• Overall, 1H17 earnings grew 33.9% to RM9.0m (1H16: RM6.7m) in tandem with improvement in revenue which rose 10.9% YTD

• No changes to earnings. We expect near to medium earnings growth to be driven by SKIN albeit we note there is inherent execution risk given the company’s lack of track record.

• Maintain BUY with a TP of RM2.65 TP which implies a FY17E PE of 95x before easing to 32x in FY18E.

Strong quarter performance

Prestariang’s 2Q17 core earnings grew 80.9% qoq and 50.9% yoy to RM5.8m. This was underpinned by higher profit recorded at its Software & Services and Academy segments while the Education segment recorded lower losses on higher student intakes.

Earnings improved

Overall, 1H17 earnings grew 33.9% to RM9.0m (1H16: RM6.7m) in tandem with revenue increasing 10.9% underpinned by higher contribution from Software & Services and Education segments. Prestariang’s 1H17 core earnings were ahead of our expectations at 67% but fell short of consensus at only 32% of FY17E forecast.

No change to forecast

Despite the strong 1H17 earnings performance, our forecasts remain unchanged as we expect contribution from the Software & Services to normalise in 2H17. Management guided that the Software & Services are typically front-end loaded due to timing of license renewals.

SKIN to be the main earnings driver

In the near to medium term, we expect the implementation of Sistem Kawalan Imegresen Nasional (SKIN) would underpin its structural earnings growth. Nevertheless, we assumed earnings contribution from SKIN to only start from FY18 onwards while we note that there is inherent execution risk due to the company’s lack of track record in executing projects of such scale.

Dividend declared

A second interim DPS of 1.0 sen was declared. Our full year DPS of 2.9 sen. Our forecast DPS implies a dividend yield of 1.7%.

Maintain BUY with TP of RM2.65

We maintain our BUY with a DCF-derived TP of RM2.65 (Table 2). This implies a FY17E PE of 95x before easing to 32x in FY18E which is fair considering the sizeable contribution of SKIN project.

Source: BIMB Securities Research - 25 Aug 2017