Prestariang Bhd
(March 12, RM2.38)
Upgrade to outperform with a higher target price (TP) of  RM2.76 from RM1.98: Prestariang announced it received a new three-year contract to supply Microsoft software to all schools and colleges under the Education Ministry.

The RM24.3 million contract is also the second major contract for the group after the extension of the Microsoft Licensing Agreement (MLA), which made the company the sole Microsoft Licensing Solutions Partner for the Malaysian government.

We increase our earnings forecast for financial year 2015 (FY15) to FY17 by 15% to 35% respectively, after further adjusting our numbers for MLA 2, revising assumption for the renewal of I-Citizen (a training programme developed by Prestariang Systems Sdn Bhd to foster national unity via appropriate use of technology), 3Ps (an industry-based certification initiative based on information technology skills known as Program Pentauliahan Profesional), Autodesk Managing University Software Enterprise contracts, and the second new contract.

Subsequently, we also revise our TP from RM1.98 to RM2.76 with an “outperform” call from “neutral”.

The new contract, under the Education Alliance Agreement, focuses on delivering the latest Microsoft technology and learning tools to national schools via cutting-edge software and services.

Assuming a similar gross margin of 10% to 15% for its new Microsoft contract, we think it is expected to contribute an additional RM1 million per annum to its bottom line. 

The group also received a renewal contract for MLA 2 to supply and manage Microsoft software and licences for all government departments and agencies in Malaysia.

Because of its strong partnership with Microsoft, we believe the group will be able to secure more Microsoft contracts, especially in the private sector in future. The new TP of RM2.76 is pegged to 20 times FY16 price- earnings ratio. — Public Investment Bank Bhd, March 12

This article first appeared in The Edge Financial Daily, on March 13, 2015.