• 4Q18 core earnings fell 94% yoy and 37% qoq mainly driven by termination of the SKIN project and lower contribution from software & services business.

• Overall, 2018 core earnings trailed ours and consensus’ estimates at only 9% and 19% respectively.

• We remain negative on the stock over termination of the SKIN project as we earnings drag form its other core businesses in the near to medium term.

• Maintain SELL with a DCF-derived TP of RM0.20.

No more SKIN

4Q18 core earnings declined sharply by 94% yoy and 37% qoq in tandem with lower revenue. This was mainly driven by termination of Sistem Kawalan Integrasi Nasional (SKIN) project and lower contribution from software & services business (c. 70% of sales).

Disappointing performance

2018 core earnings fell 97% underpinned by lower contribution from software & services business in 1H18. Earnings were further dragged by higher finance cost, provision of tax expense and penalties. Overall, 2018 core earnings trailed ours and consensus’ at only 9% and 19% respectively. We make no changes to earnings as we expect earnings to slip into the red over 2019F-20F.

Negative outlook

We remain negative over its business prospects owing to termination of the SKIN project as we had anticipated SKIN to provide earnings buffer against potential drag from its core businesses. To recap, Prestariang already spent c.RM156m on SKIN and are in talk with the government on compensation for the termination as per the contract. Besides, we are cautious over its key business, the software license distribution, as we see a possibility of the job being re-tendered for new entrants.

Maintain SELL at RM0.20 TP

Maintain SELL with a DCF-derived TP of RM0.20. We believe this is fair given the poor business outlook as we see limited earnings catalyst over the near to mid-term.

Source: BIMB Securities Research - 1 Mar 2019