Prestariang Bhd
(Oct 10, RM1.59)
Maintain “neutral” with target price (TP) of RM1.60: Prestariang Bhd’s first half of financial year 2014’s (1HFY14) RM13.4 million core earnings made up only 33.9% of our previous full-year estimates due to slower-than-expected contract flows in this period.

Since then, we notice that there have not been any major contract announcements, with its last contract announced on Bursa Malaysia in November 2013. In our view, this may take a toll on its 2HFY14 earnings. As such, we are taking a preemptive approach by cutting our FY14earnings forecast by 12.8% to RM28.7 million or earnings per share of 5.9 sen, taking into account weaker contributions from its core information and communications technology licensing, training and certification division.

Our channel checks indicate that there have been slight delays in the potential collaboration of its university, University Malaysia of Computer Science and Engineering or Unimy, with a local education-centric partner. We now expect the partnership to be officially firmed up by December (vs September previously). We deem this tie-up crucial in helping to boost enrolment numbers at the university, which booked RM3.4 million in 1H14 core losses. Should there be further delays, we see downside risks to our FY15 forecasts, as we are currently projecting for Unimy to return to the black by next year.

On a side note, the management remained tight-lipped on the utilisation of its recently-concluded placement exercise, which raised some RM70 million. We continue to believe that this will likely be used to bring in a new recurring earnings stream to the company, given the management’s aim of beefing up Prestariang’s recurring income base. We expect more details to be unveiled in the first quarter of FY15.

We adjust our valuation to a revised FY15 forecast price-to-earnings ratio of 16 times (from 20 times), in order to reflect our cautious near-term outlook in view of the company’s potential earnings headwinds ahead.

With that, we lower our TP to RM1.60 (from RM2). Given the limited downside, we maintain our “neutral” stance. — RHB Research, Oct 10

This article first appeared in The Edge Financial Daily, on October 13, 2014.