1Q15 net profit of MYR4.0m came in at 7.9%/6.7% of our/consensus fullyear estimates. Maintain BUY with our TP unchanged at MYR3.03 (21% upside). We deem the results within expectations given that 1Q is seasonally its weakest quarter and we expect higher contribution from its recently-secured Microsoft contract for the rest of the year.

Results review. 1Q15 revenue jumped 94.4% YoY to MYR40.0m due to better showing from its software licensing segment (+193.8% YoY), driven by maiden contribution from its Microsoft contracts inked with the Ministry of Finance in end-January and the Ministry of Education in March. Core earnings, however, shed 37.4% YoY to MYR4.0m due to the lower-margin nature of these new jobs. Management declared a first interim DPS of 0.75 sen, which translates into a generous payout ratio of 90.6% for the quarter.

Looking ahead. 1Q15 numbers were higher QoQ across the board, thanks to positive earnings accretion from the new Microsoft contract. We reiterate our view that the worst is over for Prestariang and we continue to expect significant earnings improvements for the rest of the year driven by orders for new Microsoft licenses. Although there have been some delays on the firming up of its proposed university partnership with Majlis Amanah Rakyat, our channel checks indicate that negotiations will be finalised in due course. In addition, we are hopeful that the group could officially roll out its accelerated training course for the Programme for International Student Assessment (PISA) by 2H15.

Forecasts and risks. We make no major changes to our earnings forecasts as we deem the results largely in line. Key risks are a potential slowdown in orders for Microsoft licenses from the Government as well as prolonged losses at its university due to a lack of economies of scale.

Maintain BUY. All in, we maintain our BUY call with our TP reaffirmed at MYR3.03, based on an unchanged 20x 2016 P/E. We are adamant that the group would register its all-time high earnings in FY15, leveraging on contribution from the Microsoft contract. On top of that, we expect share price to further re-rate over the near term on potential orderbook replenishment as management intends to further capitalise on its recently announced tie-up with Unisys (UIS US, NR) being its technology solutions provider.

Source: RHB Research - 28 May 2015