Prestariang announced a private placement  of up to 44.0m new shares (10%  of  its  outstanding  share  base  of  440.0m)  yesterday,  which  could raise MYR70m-80m.  We  expect  management  to  utilise  the  proceeds  on new  projects,  which  we  believe  will  soon  be  unveiled,  to  beef  up  its recurring  earnings  base. Maintain  BUY  for now, with  our FV  fine-tuned to MYR2.25 (or MYR2.05 post-completion of the exercise).

Details  of  the  exercise.  The  price  of  the  new  shares,  while  not  yet determined,  will  be  at  not  more  than  a  10%  discount  to  its  volume-weighted  average  price  for  the  past  five  trading  days.  We estimate  that the  exercise,  which  could  raise  net  proceeds  of  MYR70m-80m,  will  be completed  by  end-3Q14.  According  to  its  announcement  to  Bursa Malaysia, the proceeds will be used for the “development and expansion of existing business”.

Cash-rich now. Prestariang is sitting on net cash of close to MYR60.0m as of 1QFY14. Netting off the first interim DPS of 1.25 sen, we estimate that it would still have some MYR54.5m in its net cash balance. Post the exercise, this is expected to balloon to MYR125m-135m.  

Likely  new  business  in  the  pipeline.  Judging  by  management’s past track  record  of  keeping  its  balance  sheet  clean  and  its  minimum  50% dividend payout policy – on top of its existing business requiring minimal capex  –  we  believe  the  proceeds  from  the  private  placement  will  most likely  be  used  to  expand  its  recurring  earnings  base.  This  is  consistent with management’s move to set up the University Malaysia of Computer Science  &  Engineering  back  in  2013.  Given  that  the  university  is  still in the  red,  we  believe  that  management  is  likely  on  the  lookout  for  other opportunities to bring in a recurring revenue stream.   

Maintain  BUY.  We  take  the  opportunity  to  reduce  our  FY14F  EPS  by 14.8%,  as  we  revamped  our  model  due  to  a  change  of  analysts.  Our FY15F  EPS  is  now  lower  by  a  more  moderate  0.7%  as  we  expect  its university  arm  to  record  a  positive  contribution  come  2015.  Maintain BUY,  with  our  FV  fine-tuned  to  MYR2.25  (from  MYR2.27)  based  on  an unchanged FY15F P/E of 17.5x. Upon completion of the placement, our FV  will  be  diluted  to  MYR2.05.  While  this  may  appear  to  offer  limited upside  from  now,  we  will  revisit  our  model  upon  management’s confirmation of the potential new expansion opportunities ahead.

Recommendation Chart

Source: RHB