Prestariang Bhd
(Jan 26, RM1.95)
Maintain add with target price (TP) of RM3.36: Last Friday, Prestariang Bhd announced that it had secured the letter of award (LOA) from the Ministry of Finance (MOF) to be the exclusive Microsoft licensing solutions partner (LSP) to provide Microsoft software under the Master Licensing Agreement (MLA2.0) to all the government agencies in Malaysia.
The LOA is effective February 2015 and runs for three years. Prestariang was one of nine LSPs that bid for the MLA2.0 contract.
We were pleasantly surprised that Prestariang was chosen to be the exclusive LSP for the MLA2.0 contract. The company did not indicate the annual contract size for MLA2.0, but our checks with industry sources indicate that it should be around US$45 million-US$50million (RM162.45 million-RM180.5 million), if not higher. Assuming a 10% net profit margin for MLA 2.0 (software and training), MLA2.0 could boost Prestariang’s net profit by at least RM16.2 million (3.3 sen earnings per share [EPS] enhancement). The potential MLA2.0 earnings could be as much as 65% of the group’s expected 2014 net profit, an indication of how significant the MLA2.0 earnings impact would be for Prestariang. In addition, we understand that there is no forex risk for the company as the US dollar-ringgit exchange rate would be based at the time of the order. We raise Prestariang’s financial years 2015 and 2016 (FY15-FY16) EPS by 13%-17% to reflect the additional MLA2.0 earnings and also take into account the likely lower oil and gas training students this year (assuming 1,000 training students in 2015 versus our previous assumption of 2,000 students) in view of the current tough conditions in the oil and gas sector.
2015 should be a record year for Prestariang after a disappointing 2014. Newsflow has turned positive since end-2014 when Majlis Amanah Rakyat proposed to acquire a minority stake in University Malaysia of Computer Science & Engineering, and now the MLA2.0 contract win.
Positive news flow should continue. Ex-cash, the stock is trading at an attractive 9.5 times calendar year 2015 price earnings. The dividend yield also looks attractive at 5.4%. — CIMB Investment Bank Bhd, Jan 23
This article first appeared in The Edge Financial Daily, on January 27, 2015.