(July 5, RM1.19)
Maintain outperform with a higher target price (TP) of RM1.79: We are encouraged by the announcement made by the president and group chief executive, Dr Abu Hassan, following a meeting with the Council of Eminent Persons yesterday. Prestariang Bhd will continue to implement and roll out the RM3.5 billion Sistem Kawalan Imigresen Nasional (SKIN) project as per the definitive concession agreement signed on July 18, 2017. The announcement brings much-needed calm to investors as the mega project had been seen to be in limbo following in light of the new government’s belt tightening. Post-GE14, the share price has tumbled more than 29% and fell to as low as RM1 recently. Following a better outlook of the SKIN project, we reduce the discount attached on our sum of parts -based valuation to 10%.
Prestariang on July 18, 2017 signed a 15-year concession agreement with the home ministry to implement SKIN, a border protection control system, which will replace the existing Malaysian Immigration System. Under the agreement, Prestariang will receive payment upon full commissioning of SKIN Solutions, with an average annual payment of RM294.7 million for 12 years, from the 4th to the 15th year, during the maintenance service period. The group has roped in French defence, technology and security firm, Thales Communications & Security SAS and Thales Malaysia Sdn Bhd as its strategic technology partner to carry out 30% of the project while the domestic team will handle the remaining 70%.
The development stage will take at least a year before being gradually deployed to 274 sites nationwide. It has brought in 158 experts to handle various tasks and targets a total of 300 experts by year-end. It has targeted to reach 30% completion by end of this year.
Meeting between Prestariang management and the government’s advisers is a big boost to sentiment and should allay concerns of investors who were doubtful about the prospects of the mega project following the rationalisation of operating expenditure under the new government. — PublicInvest Research, July 5
Note: In December 2017, Thales had completed the sale of its identity management business to Imprimerie Nationale Group. Hence, Thales is no longer involved in the SKIN project.