While we continue to like Prestariang for its: i) committed management team led by CEO Dr Abu Hasan Ismail, ii) sturdy balance sheet under its asset-light approach, and iii) potential diversification into a recurring earnings model, we believe it is fully priced in for now after the recent surge in its share price. As such, we downgrade our call to NEUTRAL (from BUY). Our FV is marginally revised to MYR2.34 (from MYR2.05) based on a updates 20.0x FY15F P/E (from 17.5x). 

Placement completed. Following the completion of its 10% private placement, Prestariang’s current share base has increased to 484.0m. The exercise raised about MYR76.0m in net proceeds. 

Potential new earnings stream. Management remains tight-lipped on the utilisation of the funds. We expect this to be unveiled by end-3QFY14. Judging from its past track record, we continue to believe that management is likely looking at opportunities to shore up its recurring earnings base. Such a possibility, in our view, has largely contributed to the recent share price jump as investors warm up to management’s move to diversify from its current contractual earnings base. 

University’s progress.  Recall that in mid-2012, management announced its first recurring earnings attempt via the setting up of a university. Unfortunately, as of 2QFY14, the university was still lossmaking. Management guided that it is exploring the possibility of roping in a new shareholder within the next 2-3 months to help boost enrolment. The move, if it materialises, would help its tertiary education outfit to break even by end-FY14 and commence positive earnings accretion come FY15. 

Fully priced in for now. Given the lack of clarity on its potential new recurring earnings stream at this juncture and following the recent surge in its share price, we deem Prestariang as fully priced in for now. Based on its last closing price, the stock is trading at 20.2x FY15 P/E. 

Downgrade to NEUTRAL. We take the opportunity to downgrade our call to NEUTRAL. Our FV now stands at MYR2.34 (from MYR2.05) as we revise up our target FY15F P/E to 20.0x (from 17.5x) in view of improved sentiment on a potential new recurring earnings stream.

 

 

 

 

 

 

 

Source: RHB