Prestariang Bhd
(March 27, RM2.25)
Initiate coverage with buy and a fair value of RM2.60: We initiate coverage of Prestariang Bhd with a “buy” recommendation and a fair value of RM2.60, pegged at financial year 2018 forecast (FY18F) price-earnings ratio of 21 times. This represents a 20% premium to peers’ average of 17 times, justified by its higher FY16 to FY19F net profit compound annual growth rate (CAGR) of 100% versus the industry’s 73%. Including an expected dividend yield of 2%, the fair value provides an implied upside of 20% from the current price.

From a low base, Prestariang’s earnings are expected to register an FY16 to FY19F CAGR of 100%, premised on: i) a recent contract to implement Sistem Kawalan Imigresen Nasional (SKIN); ii) a pickup in information and communications technology (ICT) training orders from the Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang; and iii) an uptick in student registration at University Malaysia of Computing Science and Engineering (UniMy).

Prestariang is the largest ICT training and certification provider, and a leader in software distribution in Malaysia. It has partnered with a number of well-known names including Microsoft, Autodesk (developer of AutoCAD), IBM and Oracle.

We expect revenue from software distribution and management to grow by 20% in FY17F, underpinned by upgrades from older versions of Microsoft Office to Microsoft Office 2016.

The company has recently won an RM3.5 billion project to implement SKIN at the national border. To be conservative, we have assumed that the contract would only commence in the second half of FY17, and hence the company would only be recognising 50% of contribution from SKIN in FY17F. As such, our net profit forecast for FY17F is 37% below the consensus.

UniMy is targeted to break even in FY17F to FY18F, if it successfully registers 450 to 500 students. In August 2016, UniMy introduced nine new courses including postgraduate programmes and diploma courses. This is expected to underpin the targeted student growth of 125% and UniMy’s profit turnaround by FY18F.

In the employment services segment, foreign workers’ requirement for the Rapid project is expected to peak by FY19F. As a result, the segment’s revenue is anticipated to surge 2.5 times in FY19F, from a flattish FY17F to FY18F.

Recently, Prestariang has signed a memorandum of understanding with Alibaba Cloud and Conversant Solutions to collaboratively build an Integrated Education Platform known as EduCloud. This would help expand Prestariang’s service offerings into online application services such as big data analytics, which could provide new revenue streams. We believe possible ways to monetise the business is by offering ad placement solutions within the platform as well as consumer behaviour studies to clients. However, we cannot quantify its impact for now before further details become available. — AmInvestment Bank Bhd, March 27