Prestariang Bhd
(Nov 21, RM2.45)
Maintain outperform call with a target price (TP) of RM2.87: Prestariang Bhd announced last week that it had received a letter from the home affairs ministry to confirm that the cabinet had approved the company’s proposed implementation of the Sistem Kawalan Imigresen Nasional (SKIN) project.

Prestariang will receive an annual fee of RM294.7 million for 12 years upon full commissioning of the system or a total contract value of RM3.5 billion. Our earlier estimates show that this concession could add an additional RM1 to RM1.50 per share to our TP. In view of the more positive outlook, we are raising our TP from RM2.43 to RM2.87 by attaching a higher price-earnings ratio of 33 times in our current valuation method, subject to further changes upon finalisation of the concession agreement and after getting more guidance on the project.

SKIN is a comprehensive and integrated technology platform to modernise the core applications and infrastructure of the national immigration system with the objective of enhancing the national border security. Once fully commissioned, it will replace the current Sistem Imigresen Malaysia.

SKIN will also complement the existing Sistem Pengurusan Pekerja Asing Bersepadu. The RM3.5 billion contract will be a 15-year concession, consisting of a three-year building and deployment phase and a 12-year maintenance and technical operation phase. The contract value is inclusive of all costs incurred during both phases. It is expected to be fully commissioned by 2020 and will be installed in all immigration offices, including the country’s entry points as well as attached offices abroad. All-in, there will be a total of 236 SKIN project points to be installed.

The purpose of SKIN is to enhance the effectiveness of our national security system. We understand that our existing immigration system is dated, with a need to completely overhaul the system, policies, people, processes, and operations in order to improve the effectiveness of the national security system.

Implementation of the SKIN system also supports the country’s efforts in collaboration with the US under the Preventing and Combating Serious Crime and Homeland Security Presidential Directive-6, which are the prerequisites for Malaysia to participate in the US visa-waiver program.

Moreover, SKIN would bring a steady recurring income to the group. Assuming a 10% to 15% profit margin, the SKIN project could generate at least RM20 million to RM30 million per annum to the group’s bottom line upon commissioning. This will be a big boost to the group’s current earnings. As we require more guidance on the SKIN project while pending signing of the concession agreement, we have not factored in earnings contribution in our forecasts, with first benefits only expected to kick in by 2020 in any case. — PublicInvest Research, Nov 21