This article first appeared in The Edge Financial Daily on November 27, 2017

Prestariang Bhd
(Nov 24, RM1.35)
Retain outperform call with a lower target price (TP) of RM1.85: Prestariang Bhd’s cumulative nine-month period ended Sept 30, 2017 (9MFY17) earnings nearly doubled to RM13.6 million, mainly driven by the maiden revenue contribution from the Sistem Kawalan Imigresen Nasional [National Immigration and Border Control System] (SKIN) project. It is thrilling to see the RM1 billion project has finally commenced following the conclusion of the concession agreement in July.

The results were below our and consensus expectations, making up only 37% and 52% of our and consensus estimates, respectively. The weaker-than-expected results were mainly due to the longer period taken to initiate the project, resulting in slower progress.

A lower dividend per share (DPS) of 5 sen (versus 75 sen in third quarter FY16 [3QFY16]) was declared for the quarter.

Nevertheless, we continue to retain our “outperform” call but with a lower TP of RM1.85 (down from RM2.87) as we attach a lower price-earnings ratio (PER) of 20 times (down from 32 times) due to uncertainties over the fund-raising exercise for the SKIN project.

We also slash our earnings forecasts for FY17 by 44%, but keeping our FY18-FY19 earnings forecasts unchanged.

The group revenue for the third quarter ended Sept 30, 2017 (3QFY17) increased from RM17.8 million to RM48.4 million, mainly driven by the new contribution from the SKIN project, amounting to RM29.9 million.

The stronger revenue was also contributed by education and employment services despite weaker sales contribution from the software and services and academy segment.

Stripping out minority interest, which was mainly derived from the 30% stake in Prestariang Services Sdn Bhd, the company generated core earnings of RM4.5 million in 3QFY17.

Employment services also registered higher earnings, up 42% year-on-year (y-o-y) to RM151,000. On the other hand, software and services and academy earnings fell 26% y-o-y to RM2.2 million while losses in the education segment grew from RM1.6 million to RM1.7 million.

It is understood that the company was given a six-plus-three-month period, effective from the date of execution of the concession agreement on July 18, 2017, to fulfill the conditions.

This includes securing the amount of funding (about RM1 billion) for the total investment cost of the SKIN project. About 80% of the total investment is expected to derive from debt portion.

The group is still sitting on a net cash position of RM38 million following a borrowing of RM19.8 million raised recently. The healthy financial position would give the company plenty of financial options to undertake the mega project. — PublicInvest Research, Nov 24