KUALA LUMPUR (July 19): AmInvestment Bank has downgraded Prestariang Bhd shares from "buy" to "hold" after learning that the group will own 70% of the Sistem Kawalan Imigresen Nasional (SKIN) project, and not 100% as the bank had previously assumed.

In a research note today, AmInvestment said it has reduced the stock's fair value to RM2.00 from RM2.60.

Yesterday, Prestariang's 70%-owned unit Prestariang SKIN Sdn Bhd inked the RM3.5 billion concession agreement with the government to implement the SKIN project for the immigration department.

Noting that Prestariang is considering an 80:20 debt-to-equity ratio as the funding structure for SKIN, AmInvestment estimated that the project would require a capital expenditure of RM900 million.

"This means that the group may have to raise RM180 million in equity. Assuming RM2.00 as the offer price for its equity raising exercise, there would be a potential dilution from the issuance of 90 million new shares," it said.

"All-in, the reduction in project ownership (in our assumption) from 100% to 70% coupled with the potential dilution from new share issuance have contributed largely to our reduction in fair value," said AmInvestment.

The investment bank noted that Prestariang had indicated that its debt financing could be a mixture of Islamic medium-term notes and commercial term loan with 5% to 5.5% annual interest.

"We note that Prestariang's core businesses (mainly software services and ICT training) continue to offer bright prospects, but its valuation appears unattractive for now," added AmInvestment.

At 3.40pm, Prestariang was down 15 sen or 6.3% to RM2.23 with over five million shares changing hands, giving it a market capitalisation of RM1.08 billion.