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This article first appeared in The Edge Financial Daily on September 7, 2017

Prestariang Bhd 
(Sept 6, RM1.80)
Maintain buy with an unchanged fair value of RM2.08:
We reiterate “buy” on Prestariang Bhd with unchanged forecasts and a fair value of RM2.08 based on sum-of-parts valuation. Prestariang is currently trading at a financial year ending Dec 31, 2018 forecast price-earnings ratio of 12.5 times, which is a steep discount to its peer average of 18 times. 

Prestariang has entered into a subscription agreement with OpenLearning Global (OGPL) and its founder and chief executive officer Adam Maurice Brimo for the subscription (in tranches) of up to five million new “A” shares in OGPL and approximately three million convertible preference shares for a total consideration of A$5 million (RM17 million) to be funded by internally generated funds. Subsequent to the subscription, Prestariang will own an approximate 16.7% interest in OGPL. 

However, we note that Prestariang’s final equity interest in OGPL will be determined based on a performance band. Based on the latest information available, OGPL remains unprofitable but is expected to break even in 2018 and aims to achieve a profit after tax (PAT) of A$9 million in 2020. Should OGPL achieve the targeted PAT of A$9 million in 2020, Prestariang will receive an effective shareholding of 14.3%. In contrast, any shortfall in the PAT target could see the shareholding progressively rising to 24.3%. 

The objective of the agreement is to venture into the cloud-based higher education markets both domestically and regionally. OGPL operates a platform for learning management systems and massive open online courses (MOOCs). It currently has revenue share agreements with 66 higher educational and vocational institutions across four countries and over 900,000 students in its database. Having secured an agreement with the higher education ministry to set up and operate the National MOOC Platform for public universities, it also has a considerable foothold in our local education market. 

Noting competition from more established names like Udemy, Udacity and Coursera, we leave our forecasts unchanged for now pending further earnings clarity. Positively, the investment would allow Prestariang to tap into OGPL’s student database and technical expertise for the development of EduCloud.

We continue to like Prestariang for its leading position in the information, communications, and technology training and software distribution space in Malaysia, its SKIN project which is expected to beef up net profit by more than eight times from financial year 2016 (FY16) to FY18, and its recent tie-up with Alibaba Cloud and Conversant Solutions to develop EduCloud, which provides potential for new revenue streams. — AmInvestment Bank, Sept 6
 

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