PRESTARIANG BUY. 4Q core profit surges over 4x YoY. Company report. (Maintained) TECHNOLOGY. Lavis Chong
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1 PRESTARIANG TECHNOLOGY (PRES MK EQUITY, PSTG.KL) 28 Feb 2018 Company report Lavis Chong Q core profit surges over 4x YoY Rationale for report: Company results BUY (Maintained) Price Fair Value 52-week High/Low Key Changes Fair value EPS RM1.67 RM2.20 RM2.43/RM1.19 YE to Dec FY17 FY18F FY19F FY20F Revenue (RM mil) Core net profit (RM mil) FD Core EPS (sen) FD Core EPS growth (%) (27.4) Consensus Net Profit (RM mil) DPS (sen) PE (x) EV/EBITDA (x) Div yield (%) ROE (%) Net Gearing (%) nm Stock and Financial Data Shares Outstanding (million) Market Cap (RMmil) Book Value (RM/share) 0.34 P/BV (x) 4.9 ROE (%) 11.2 Net Gearing (%) - Major Shareholders Dr.Abu Hasan Bin Ismail(20.7%) KWAP(12.0%) AIA Bhd(9.5%) Free Float Avg Daily Value (RMmil) 1.4 Price performance 3mth 6mth 12mth Absolute (%) 12.8 (10.7) (22.0) Relative (%) 3.7 (15.6) (29.4) Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 PRES MK FBMKLCI Index 2,000 1,800 1,600 1,400 1,200 1, Investment Highlights We reiterate BUY on Prestariang with a higher fair value of RM2.20/share (previously RM2.08/share) based on sum-ofparts valuation (see Exhibit 2). We have raised our FY18F- FY19F net profit forecasts by 4-13% to account for narrowing losses at UniMy and a higher-than-expected mark-up margin for Sistem Kawalan Imigresen Nasional's (SKIN) revenue recognition. Prestariang's FY17 core net profit surged 144% YoY to RM21.7mil, surpassing our estimate by 25%, and fell in line with consensus. For 4QFY17, core net profit soared 80% QoQ and 353% YoY to RM8.1mil. Note that we have stripped out an impairment loss amounting to RM3.5mil for both 4QFY17 and FY17. The impairment was associated with development costs incurred for Enhancing School Based Learning Assessment in Science and Mathematics (ESBLA) project, which was previously capitalised as an asset. Fortunately, we had not factored in earnings contribution from the project. The momentous earnings recovery stemmed from the recognition of SKIN revenue. During the year, the group booked in RM78.1mil of SKIN revenue over 2 quarters (36% of group revenue). Note that this represents only a small portion of the full project value accounting for only expenses incurred for preparatory works of the project (e.g. feasibility studies and consulting fees). Bumper SKIN revenue is expected when development works kickoff, pending a final nod from the government. From our checks, this could come very soon, placing the group on track to commence SKIN operations in mid-march. Also notably, UniMy s 4QFY17 revenue grew 21% QoQ and 3x YoY as its student population increased to circa 520 students vs. 200 students in the previous year. This was helped by the key intakes in April 2017 and August 2017, and the introduction of several diploma and postgraduate programmes in late Consequently, the segment s LBT margin narrowed significantly from 207% in 4QFY16 to 25% in 4QFY17. We expect the segment to turn into the black in FY18F, mitigating annual losses of RM5-6mil. We continue to like Prestariang for its: 1) leading position in the ICT training and software distribution space in Malaysia; 2) the award of SKIN, which is expected to beef up net profit by more than 8x from FY16 to FY18F; and 3) recent tie-up with Alibaba Cloud and Conversant Solutions to develop EduCloud, which provides potential new revenue streams. At the current price, Prestariang appears undervalued for a solutions provider. The company currently trades at a 1-year forward PE of 11x, while its regional comparables, Chinasoft International and Hexaware Technologies, are both trading at 19x.
2 EXHIBIT 1: RESULTS SUMMARY YE 30 Dec (RM mil) FY16 FY17 YoY (%) 4QFY16 3QFY17 4QFY17 QoQ (%) YoY (%) Turnover >100 EBITDA >100 (2.0) nm Depreciation/Amortisation (1.7) (1.8) (4.1) (0.6) (0.5) (0.5) (3.8) 18.8 EBIT >100 (2.5) nm Interest expense (0.1) (0.3) (338.3) (0.1) (0.0) (0.2) (>100) (243.3) Interest income (28.2) 4.7 (2.6) 3.5 nm (26.4) Pre-Exceptionals profit > >100 >100 Exceptionals 0.0 (3.5) nm (0.4) 0.0 (3.5) nm (806.9) Pre-tax profit > >100 >100 Taxation (2.5) (13.4) (440.0) (0.1) (1.4) (10.1) (633.9) (6,703.4) Minority interest (0.2) (6.4) (3,779.3) (0.2) (2.5) (3.7) (>100) (2,185.4) Net Profit > >100 Core Net Profit > >100 Basic EPS (sen) > >100 DPS (sen) (8.3) (33.3) EBITDA margin (%) (8.0) Pretax margin (%) Effective tax (%) Segmental Breakdown (RMmil) Revenue Software services (10.4) ICT Training (42.3) nm 3.1 Education > >100 Employment services (7.8) 4.9 SKIN nm nm Others (1.8) (5.1) Eliminations (18.1) (17.8) 1.8 (6.0) (4.8) (5.7) (18.4) 5.1 Total >100 PBT Software services & ICT training (5.8) (35.3) (58.2) Education (6.3) (4.7) 25.5 (1.5) (1.8) (0.5) Employment services (3.9) (0.1) nm nm SKIN nm >100 nm Others (11.3) (0.7) (25.6) Eliminations (18.1) (17.8) 1.8 (6.0) (4.8) (5.7) (18.4) 5.1 Total > >100 >100 PBT margin Software services & ICT training 16% 14% 15% 15% 7% Education -245% -76% -207% -100% -25% Employment services 8% 6% 3% 11% -8% SKIN nm 35% nm 28% 40% Others 88% 80% 94% 88% 74% Total 9% 17% 7% 17% 26% Source: Company, AmInvestment Bank Bhd AmInvestment Bank Bhd 2
3 EXHIBIT 2: SUM-OF-PARTS (SOP) FAIR VALUE Value RM mil % Comments: SKIN value attributable to Prestariang % 70% of NPV attributable to Prestariang FY18F earnings excl. SKIN % Based on 18x PE Subtotal % Net non-operating assets/(liabilities) 32 3% Other investments Net cash/(debt) at company level 17 2% - FD RNAV % FD no. of shares 514 Assuming 30mil new shares for SKIN FV/share 2.20 Source: Company, AmInvestment Bank Bhd estimates EXHIBIT 3: PB BAND CHART EXHIBIT 4: PE BAND CHART δ Avg δ δ Avg δ Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 AmInvestment Bank Bhd 3
4 EXHIBIT 5: FINANCIAL DATA Income Statement (RMmil, YE 31 Dec) FY16 FY17 FY18F FY19F FY20F Revenue EBITDA Depreciation/Amortisation (1.7) (1.8) (5.8) (10.4) (15.9) Operating income (EBIT) Other income & associates Net interest (6.9) (20.9) (31.0) Exceptional items 0.2 (3.5) Pretax profit Taxation (2.5) (13.4) (10.6) (10.9) (10.8) Minorities/pref dividends (0.2) (6.4) (15.4) (24.6) (14.1) Net profit Core net profit Balance Sheet (RMmil, YE 31 Dec) FY16 FY17 FY18F FY19F FY20F Fixed assets Intangible assets Other long-term assets Total non-current assets Cash & equivalent Stock Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders funds Minority interests BV/share (RM) Cash Flow (RMmil, YE 31 Dec) FY16 FY17 FY18F FY19F FY20F Pretax profit Depreciation/Amortisation Net change in working capital (7.0) (44.8) (246.3) (328.4) (246.3) Others (9.6) (2.2) (3.7) Cash flow from operations (3.4) (7.2) (142.3) (168.4) (109.9) Capital expenditure (0.9) (27.2) (50.8) (83.8) (92.3) Net investments & sale of fixed assets (6.8) (11.9) Others Cash flow from investing (4.9) (7.7) (49.4) (80.3) (88.6) Debt raised/(repaid) (0.7) Equity raised/(repaid) Dividends paid (15.7) (14.5) (15.4) (15.4) (15.4) Others (1.5) (1.8) (8.2) (24.4) (34.7) Cash flow from financing (17.9) Net cash flow (26.1) (8.7) (26.9) Net cash/(debt) b/f Net cash/(debt) c/f Key Ratios (YE31 Dec) FY16 FY17 FY18F FY19F FY20F Revenue growth (%) (14.9) EBITDA growth (%) (49.2) (13.8) Pretax margin (%) Net profit margin (%) Interest cover (x) nm nm Effective tax rate (%) Dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days) Source: Company, AmInvestment Bank Bhd estimates AmInvestment Bank Bhd 4
5 DISCLOSURE AND DISCLAIMER This report is prepared for information purposes only and it is issued by AmInvestment Bank Berhad ( AmInvestment ) without regard to your individual financial circumstances and objectives. Nothing in this report shall constitute an offer to sell, warranty, representation, recommendation, legal, accounting or tax advice, solicitation or expression of views to influence any one to buy or sell any real estate, securities, stocks, foreign exchange, futures or investment products. AmInvestment recommends that you evaluate a particular investment or strategy based on your individual circumstances and objectives and/or seek financial, legal or other advice on the appropriateness of the particular investment or strategy. The information in this report was obtained or derived from sources that AmInvestment believes are reliable and correct at the time of issue. While all reasonable care has been taken to ensure that the stated facts are accurate and views are fair and reasonable, AmInvestment has not independently verified the information and does not warrant or represent that they are accurate, adequate, complete or up-to-date and they should not be relied upon as such. All information included in this report constituteaminvestment s views as of this date and are subject to change without notice. Notwithstanding that, AmInvestment has no obligation to update its opinion or information in this report. Facts and views presented in this report may not reflect the views of or information known to other business units of AmInvestment s affiliates and/or related corporations (collectively, AmBank Group ). This report is prepared for the clients of AmBank Group and it cannot be altered, copied, reproduced, distributed or republished for any purpose without AmInvestment s prior written consent. AmInvestment, AmBank Group and its respective directors, officers, employees and agents ( Relevant Person ) accept no liability whatsoever for any direct, indirect or consequential losses, loss of profits and/or damages arising from the use or reliance of this report and/or further communications given in relation to this report. Any such responsibility is hereby expressly disclaimed. AmInvestment is not acting as your advisor and does not owe you any fiduciary duties in connection with this report. The Relevant Person may provide services to any company and affiliates of such companies in or related to the securities or products and/or may trade or otherwise effect transactions for their own account or the accounts of their customers which may give rise to real or potential conflicts of interest. This report is not directed to or intended for distribution or publication outside Malaysia. If you are outside Malaysia, you should have regard to the laws of the jurisdiction in which you are located. If any provision of this disclosure and disclaimer is held to be invalid in whole or in part, such provision will be deemed not to form part of this disclosure and disclaimer. The validity and enforceability of the remainder of this disclosure and disclaimer will not be affected. AmInvestment Bank Bhd 5
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