• Prestariang’s share price fell 16% on 10 Dec 2018 closing after the Home Affairs Ministry Department announced cancellation of the Sistem Kawan Integrasi Nasional (SKIN).

• This is clearly negative for Prestariang as we had expected the SKIN project to buffer against potential earnings drag from its core businesses.

• We slashed our FY18-20F earnings forecast between 49%-101% while our forecast also expects a less positive view on its core businesses amidst tough operating landscape.

• Maintain SELL with a lower DCF-derived TP of RM0.20 (from RM0.45). This implies FY18/19F PE of 9x/2x.

Unexpected cancellation

Prestariang share price took a significant beating after the Home Affairs Ministry Department cancelled the Immigration Department’s Sistem Kawalan Integrasi Nasional (SKIN) project. We believe the decision was largely due to the government's tight budget given the hefty RM3.5bn price tag. Contribution from the SKIN project has been recognised since 3Q17; Prestariang already spent c.RM156m on SKIN.

SKIN-less outlook

We view this negatively as we had expected SKIN to provide earnings buffer against potential drag from its core businesses. Furthermore, its software license distribution business, which adds 55-70% of revenue, could be re-tendered, if not carried out at reduced rate, as Prestariang is the sole distributor for all government agencies. Meanwhile, the outlook for the ICT training and UniMy remains challenging as both segments are loss-making.

Turning red in 2019F and 2020F

We slashed our 2018F earnings by 49% while we expect losses for 2019F and 2020F mainly from the ICT traning and UniMY. The former incurs additional cost as it migrates to a digital platform – EduCloud while the latter continues to be in the red as it also incur additional expenses moving into a new campus.

SELL at a RM0.20 TP (from RM0.45)

We maintain our SELL call on the stock with lower DCF-derived TP of RM0.20 (from: RM0.45) which values the stock at 9x/2x FY18F/FY19F PE. We are negative on the stock owing to its dim prospects while we see and limited catalyst of a turnaround in its existing businesses.

Source: BIMB Securities Research - 11 Dec 2018