The Ministry of Finance has appointed Prestariang  as the sole supplier of Microsoft software to all  government agencies in Malaysia. Upgrade to BUY (from Neutral) with our TP revised up to MYR2.21  (28% upside),based on  a  20x CY15 P/E (from 16x).  With this contract in its bag, we expect Prestariang’s core earnings to break the MYR50m threshold in FY15, putting an end to a disappointing FY14.

Salient details. Prestariang received a Letter of Award from the Ministry of  Finance  to  appoint  the  group  to  provide  Microsoft  solutions  to  all government  agencies in Malaysia. The contract is of three years  tenure starting  from  Feb  2015.  Historically,  the  procurement  of  Microsoft solutions  for  the public sector  was implemented via Prestariang and six oher private companies. With the award of this contract, Prestariang will be the sole supplier of Microsoft solutions to the public sector.

Financial  impact.  Management  guided  that  this  contract  could potentially  bring  in  MYR150m-200m  revenue  per  annum  based  on  the combined  income  of the seven companies involved previously.  We are taking a more conservative stance by factoring in  topline  contribution of MYR70m  per  annum  for  FY15-16F  in  view  of  the  Government’s increasingly  cautionary  approach  towards  reducing  spending  amidst current low crude oil prices.   

Earnings forecasts. We upgrade our FY15F and FY16F EPS by 12.3% and 19.2% respectively.  We now expect Prestariang’s core earnings to break  the  MYR50m  threshold  in  FY15.  This,  in  our  view,  will  be supported by:  i)  a target operational breakeven in FY15 for its university following  the  partnership  with  Majlis  Amanah  Rakyat,  ii)  additional income stream from this latest contract,  and iii)  the  potential renewal of its IC Citizen contract by 1Q15.  This, if materialises,  would translate into YoY earnings growth of over 100% after a disappointing 2014.

Upgrade  to  BUY.  We  believe  the  worst  is  over  for  Prestariang  as  we now expect 2015 to be a record year. As such, we are upgrading our call to  BUY  (from  Neutral)  with  our  TP  revised  up  to  MYR2.21  (from MYR1.57), based on a 20x CY15 P/E. This implies a 20-30% premium to its listed technology peers in the country,  which we deem justified given its  relatively  diversified  income  stream  and  focus  on  businesses  with higher margins.

Source: RHB