PUBLIC INVESTMENT BANK PublicInvest Research Results Review Wednesday, February 28, 2018 KDN PP17686/03/2013(032117) PRESTARIANG Outperform DESCRIPTION An ICT service provider focusing on ICT training and certification and software licence distribution and management 12-Month Target Price RM1.85 Current Price RM1.67 Expected Return +10.8% Market Main Sector Technology Bursa Code 5204 Bloomberg Ticker PRES MK Shariah-compliant Yes SHARE PRICE CHART 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 - Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 52 Week Range (RM) 1.19-2.43 3-Month Average Vol ( 000) 864.4 SHARE PRICE PERFORMANCE Absolute Returns Relative Returns 1M 3M 6M -7.4 21.2-12.0-7.7 1.8-17.1 Boosted By Construction Profit Prestariang s FY17 earnings doubled to RM18m, mainly driven by the construction profit from the Sistem Keselamatan Imigresen Nasional (SKIN), project. Nevertheless, the full-year results were below our and the street s expectations, making up only 90% and 84%, respectively. A lower DPS of 0.5sen (vs 0.8sen in 4QFY16) was proposed for the quarter. Despite weaker results, we keep our FY18-20 earnings forecasts unchanged as we expect greater results, mainly driven by bigger construction progress in the SKIN project. Maintain Outperform call with an unchanged TP of RM1.85. 4QFY17 revenue nearly tripled to RM71.9m. Group revenue surged from RM24.7m to RM71.9m, mainly driven by the construction sales from the SKIN project, a comprehensive and integrated national immigration solution aimed at modernizing the core applications and infrastructure of the national immigration and border control system, amounting to RM48m. The stronger revenue was also contributed by education (+199%) and employment services (+5%) despite weaker sales contribution from the software & services and academy segment (-10%). 4QFY17 core earnings surged to RM4.3m. Stripping out the minority interest, which was mainly derived from the 30% stake in Prestariang Services S/B, the company s core earnings of RM4.3m jumped 3-fold in the 4QFY17. On the other hand, software & services and academy earnings tumbled 58% to RM1.5m while losses in education segment halved to RM0.5m. The effective tax of 54.3% for the quarter was also higher than the statutory tax rate. Positive outlook. Management expects to see favourable results in FY18, with the implementation of the SKIN project and continuous improvement on operational efficiencies in existing businesses. KEY STOCK DATA Market Capitalisation (RM m) No. of Shares (m) 808.0 482.3 MAJOR SHAREHOLDERS Dr. Abu Hassan Bin Ismail KWAP AIA Bhd Brahmal Vasudevan % 27.3 12.9 9.7 5.9 KEY FINANCIAL SUMMARY FYE Dec (RM m) 2016A 2017A 2018F 2019F 2020F CAGR Revenue 132.0 219.5 341.0 506.0 511.0 44.7% Gross Profit 32.4 65.8 75.0 111.3 112.4 30.3% Chong Hoe Leong T 603 2268 3015 F 603 2268 3014 E chonghoeleong@publicinvestbank.com.my Pre-tax Profit 11.5 24.5 47.5 71.0 62.0 33.4% Core Net Profit 8.9 18.2 40.0 60.0 52.3 37.1% EPS (Sen) 1.8 3.8 8.3 12.4 10.8 37.1% P/E (x) 92.8 43.9 20.1 13.5 6.2 DPS (Sen) 3.0 2.8 4.2 6.2 5.4 Dividend Yield 1.8 1.7 2.5 3.7 3.2 1 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 1 of 5
Figure 1: Results Summary FY Dec (RMm) 4Q17 4Q16 3Q17 QoQ FY17 FY16 Comments Revenue 71.9 24.7 55.2 30.3 >100 219.5 132.1 66.2 Mainly driven by the construction revenue from the the SKIN project Cost of sales -40.9-17.9-42.7-4.2 >100 - -99.7 54.2 153.7 Gross profit 31.0 6.8 12.5 >100 >100 65.8 32.4 >100 Other income 1.1 0.5 0.4 >100 >100 2.7 2.9-6.9 Operating profit 32.1 7.3 12.9 >100 >100 68.5 35.3 94.1 Administrative expenses -8.8-4.7-5.2 69.2 87.2-24.1-21.6 11.6 Other expenses -4.6-0.6-0.5 >100 >100-5.9-1.7 247.1 Finance costs -0.3-0.4 0.0 - - -0.5-0.5 - Pre-tax profit 18.4 1.6 7.2 >100 >100 38.0 11.5 230.4 Taxation -10.0-0.1-1.3 - >100-13.4-2.5 0.0 Net profit 8.4 1.5 5.9 42.4 460.0 24.6 9.0 173.3 Core net profit 4.3 1.4 5.8-25.9 >100 18.0 8.9 >100 Mainly led by the construction profit from the SKIN project EPS (sen) 1.7 0.3 1.2 42.4 >100 5.1 1.9 173.3 DPS (sen) 0.5 0.8 1.0-50.0-33.3 2.8 3.0-8.3 Subject to AGM s approval Gross Margin 43.1 27.5 22.6 - - 30.0 24.5 - Pre-tax Margin 25.6 6.5 13.0 - - 17.3 8.7 - Net Margin 11.7 6.1 10.7 - - 11.2 6.8 - Effective Tax Rate 54.3 6.3 18.1 35.3 21.7 Source: Company, PublicInvest Research 2 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 2 of 5
Figure 2: Segmental Breakdown FY Dec (RMm) 4Q17 4Q16 3Q17 QoQ Revenue: Software & services & Academy FY17 FY16 20.4 22.8 52.5-61.1-10.5 129.9 125.2 3.8 Comments Education 2.2 0.7 1.5 46.7 >100 6.2 2.6 138.5 Employment services 1.3 1.2 1.2 8.3 8.3 5.4 4.3 - Concession 48.1 0.0 0.0 - - 78.0 0.0 - Others 0.0 0.0 0.0 - - 0.0 0.0 - Total 72.0 24.7 55.2 30.4 191.5 219.5 132.1 66.2 Profit Before Taxation: Software & services & Academy 1.5 3.5 9.1-83.5-57.1 18.4 19.6-6.1 Education -0.5-1.5-0.9-44.4-66.7-4.6-6.2-25.8 Employment services -0.1 0.0 0.0 - - 0.3 0.3 - Concession 19.0 0.0 0.0 - - 27.4 0.0 - Others -1.5-0.3 2.7-155.6 >100-3.6-2.2 63.6 Total 18.4 1.7 10.9 68.8 982.4 37.9 11.5 229.6 Source: Company, PublicInvest Research 3 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 3 of 5
KEY FINANCIAL DATA INCOME STATEMENT DATA FYE Dec (RM m) 2016A 2017A 2018F 2019F 2020F Revenue 132.0 219.5 341.0 506.0 511.0 Gross Profit 32.4 65.8 75.0 111.3 112.4 Other Income 2.9 2.7 3.3 3.8 6.1 Administrative Expenses -21.6-24.1-22.9-24.1-24.3 Other Expenses -1.7-5.9-2.0-2.1-2.2 Finance Costs -0.3-0.5 0.0-6.0-18.0 Pre-tax Profit 11.5 37.9 47.5 71.0 62.0 Income Tax -2.5-13.4-7.1-10.7-9.3 Effective Tax Rate 21.8 35.3 15.0 15.0 15.0 Minorities 0.0 6.3 0.0 0.0 0.0 Core Net Profit 8.9 18.2 40.0 60.0 52.3 Growth Revenue 14.4 66.2 >100 1.0-1.0 Gross Operating Profit -16.1 103.0 >100 1.0-1.0 Core Net Profit -47.3 104.4 >100-12.6-4.5 BALANCE SHEET DATA FYE Dec (RM m) 2016A 2017A 2018F 2019F 2020F Fixed assets 12.1 37.2 148.9 407.6 640.2 Other long-term assets 7.3 94.0 7.3 7.3 7.3 Cash at bank 57.9 22.1 76.3 121.5 214.5 Other current assets 119.9 102.8 165.5 208.3 209.6 Total Assets 198.2 256.1 399.2 746.0 1,072.9 Short-term borrowings 0.0 0.9 0.0 0.0 0.0 Long-term borrowings 0.3 21.9 150.3 450.3 750.3 Payables 12.9 54.4 34.4 51.1 51.6 Other liabilities 23.7 7.7 23.7 23.7 23.7 Total Liabilities 36.9 84.9 208.4 525.1 825.6 Shareholders Equity 161.0 171.3 190.5 220.6 247.0 Total Equity and Liabilities 198.2 256.2 399.2 746.0 1,072.9 PER SHARE DATA & RATIOS FYE Dec 2016A 2017A 2018F 2019F 2020F Book Value Per Share 33.3 33.9 39.3 45.6 51.0 NTA Per Share 33.3 33.9 39.3 45.6 51.0 EPS (sen) 3.8 8.3 9.2 9.5 10.8 DPS (sen) 3.0 2.8 4.7 4.8 5.4 Payout Ratio 78.9 33.7 50.0 50.0 50.0 ROA 4.5 7.1 5.2 3.9 4.9 ROE 5.6 10.6 22.3 20.5 21.3 4 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 4 of 5
RATING CLASSIFICATION STOCKS OUTPERFORM NEUTRAL UNDERPERFORM TRADING BUY TRADING SELL NOT RATED The stock return is expected to exceed a relevant benchmark s total of 10% or higher over the next 12months. The stock return is expected to be within +/- 10% of a relevant benchmark s return over the next 12 months. The stock return is expected to be below a relevant benchmark s return by -10% over the next 12 months. The stock return is expected to exceed a relevant benchmark s return by 5% or higher over the next 3 months but the underlying fundamentals are not strong enough to warrant an Outperform call. The stock return is expected to be below a relevant benchmark s return by -5% or more over the next 3 months. The stock is not within regular research coverage. SECTOR OVERWEIGHT NEUTRAL UNDERWEIGHT The sector is expected to outperform a relevant benchmark over the next 12 months. The sector is expected to perform in line with a relevant benchmark over the next 12 months. The sector is expected to underperform a relevant benchmark over the next 12 months. DISCLAIMER This document has been prepared solely for information and private circulation only. It is for distribution under such circumstances as may be permitted by applicable law. The information contained herein is prepared from data and sources believed to be reliable at the time of issue of this document. The views/opinions expressed herein are subject to change without notice and solely reflects the personal views of the analyst(s) acting in his/her capacity as employee of Public Investment Bank Berhad ( PIVB ). PIVB does not make any guarantee, representations or warranty neither expressed or implied nor accepts any responsibility or liability as to its fairness liability adequacy, completeness or correctness of any such information and opinion contained herein. 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Published and printed by: PUBLIC INVESTMENT BANK BERHAD (20027-W) 9 th Floor, Bangunan Public Bank 6, Jalan Sultan Sulaiman 50000 Kuala Lumpur T 603 2268 3000 F 603 2268 3014 Dealing Line 603 2268 3129 5 Important disclaimer is provided at the end of this report. PUBLIC INVESTMENT BANK Page 5 of 5