• Prestariang’s 1Q18 core earnings surged by over 100% yoy to RM6.5m from RM3.2m in tandem with 65.7% increase in revenue due to recognition of the Sistem Kawalan Imigresen Nasional (SKIN) project and strong contributions from Software & Services segment.
• Overall, 1Q18 core earnings were below ours and consensus’ expectations making up at 12.3% and 9.7% respectively. We make no change in earnings as we expect stronger contribution from SKIN in coming quarters.
• Maintain BUY with a TP of RM2.45. At our TP, the stock implies FY18E PE of 22x before easing to 16x in FY19E.

Earnings surged driven by SKIN project

1Q18 core earnings surged by over 100% yoy to RM6.5m driven by recognition of the Sistem Kawalan Imigresen Nasional (SKIN) project. Performance of the other businesses remained weak as the Others segment swung into the red while Software & Services and Academy as well as the Employment Services performed weaker. Overall, 1Q18 core earnings were below ours and consensus’ expectations at only 12.3% and 9.7% respectively. We expect stronger contribution from the SKIN project in coming quarters.

Qoq weakened on lower SKIN contributions

1Q18 revenue was flat qoq while core earnings fell 23.3%, in tandem with lower contribution from SKIN project and widening losses from the Education and Others segment which more than offset the surge in earnings from the Software & Services and Academy as well as the Employment Services segments.

Dividend declared

Prestariang declared a first interim DPS of 0.5 sen which implies a dividend yield of 0.5% at current price.

Maintain BUY at RM2.45 TP

In the wake of the historic GE14 outcome, Prestariang’s share price has taken a beating amidst concerns over its high dependency on government contracts. Our RM2.45 TP and BUY call is unchanged for now. However, we note that should the SKIN project and/or software & services businesses are costed down, this could pose severe risk to Prestariang’s earnings going forward.

Source: BIMB Securities Research - 16 May 2018