PRESTARIANG TECHNOLOGY (PRES MK EQUITY, PSTG.KL) 28 Feb 2018 Company report Lavis Chong chong-guang-wei@ambankgroup.com 03-2036 2291 4Q 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) 219.5 442.7 650.1 553.3 Core net profit (RM mil) 21.7 76.0 104.1 75.6 FD Core EPS (sen) 4.5 14.8 20.3 14.7 FD Core EPS growth (%) 149.4 229.6 37.0 (27.4) Consensus Net Profit (RM mil) - 21.5 64.1 78.9 DPS (sen) 2.8 3.0 3.0 3.0 PE (x) 37.2 11.3 8.2 11.4 EV/EBITDA (x) 18.9 8.2 7.2 10.0 Div yield (%) 1.6 1.8 1.8 1.8 ROE (%) 11.2 33.8 31.6 18.7 Net Gearing (%) nm 46.3 112.6 154.3 Stock and Financial Data Shares Outstanding (million) 484.0 Market Cap (RMmil) 808.3 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 105.1 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) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 PRES MK FBMKLCI Index 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 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 2016. 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.
EXHIBIT 1: RESULTS SUMMARY YE 30 Dec (RM mil) FY16 FY17 YoY (%) 4QFY16 3QFY17 4QFY17 QoQ (%) YoY (%) Turnover 132.1 219.5 66.2 24.7 48.5 71.9 48.4 >100 EBITDA 10.6 41.6 >100 (2.0) 11.6 19.2 65.6 nm Depreciation/Amortisation (1.7) (1.8) (4.1) (0.6) (0.5) (0.5) (3.8) 18.8 EBIT 8.9 39.8 >100 (2.5) 11.1 18.7 68.2 nm Interest expense (0.1) (0.3) (338.3) (0.1) (0.0) (0.2) (>100) (243.3) Interest income 2.7 1.9 (28.2) 4.7 (2.6) 3.5 nm (26.4) Pre-Exceptionals profit 11.5 41.5 >100 2.1 8.4 22.0 >100 >100 Exceptionals 0.0 (3.5) nm (0.4) 0.0 (3.5) nm (806.9) Pre-tax profit 11.5 38.0 >100 1.7 8.5 18.4 >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 8.9 18.2 >100 1.4 4.6 4.6 0.7 >100 Core Net Profit 8.9 21.7 >100 1.8 4.5 8.1 79.9 >100 Basic EPS (sen) 1.84 3.76 >100 0.3 0.9 1.0 1.1 >100 DPS (sen) 3.00 2.75 (8.3) 0.75 0.50 0.50 0.0 (33.3) EBITDA margin (%) 8.0 19.0 (8.0) 23.9 26.6 Pretax margin (%) 8.7 17.3 7.0 17.5 25.6 Effective tax (%) 21.5 35.3 8.6 16.2 54.7 Segmental Breakdown (RMmil) Revenue Software services 117.3 125.3 6.8 22.6 15.3 20.3 32.6 (10.4) ICT Training 8.0 4.6 (42.3) 0.1 0.0 0.1 nm 3.1 Education 2.6 6.2 >100 0.7 1.8 2.2 21.1 >100 Employment services 4.3 5.4 25.7 1.2 1.4 1.3 (7.8) 4.9 SKIN 0.0 78.1 nm 0.0 30.0 48.1 60.2 nm Others 18.1 17.8 (1.8) 6.0 4.8 5.7 18.4 (5.1) Eliminations (18.1) (17.8) 1.8 (6.0) (4.8) (5.7) (18.4) 5.1 Total 132.1 219.5 66.2 24.7 48.5 71.9 48.4 >100 PBT Software services & ICT training 19.6 18.5 (5.8) 3.5 2.3 1.5 (35.3) (58.2) Education (6.3) (4.7) 25.5 (1.5) (1.8) (0.5) 70.0 64.3 Employment services 0.3 0.3 (3.9) 0.0 0.2 (0.1) nm nm SKIN 0.0 27.5 nm 0.0 8.4 19.1 >100 nm Others 16.0 14.2 (11.3) 5.7 4.3 4.2 (0.7) (25.6) Eliminations (18.1) (17.8) 1.8 (6.0) (4.8) (5.7) (18.4) 5.1 Total 11.5 38.0 >100 1.7 8.5 18.4 >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
EXHIBIT 2: SUM-OF-PARTS (SOP) FAIR VALUE Value RM mil % Comments: SKIN value attributable to Prestariang 447 40% 70% of NPV attributable to Prestariang FY18F earnings excl. SKIN 633 56% Based on 18x PE Subtotal 1081 96% Net non-operating assets/(liabilities) 32 3% Other investments Net cash/(debt) at company level 17 2% - FD RNAV 1130 100% 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 12.00 200.00 180.00 10.00 160.00 8.00 6.00 +1δ Avg 140.00 120.00 100.00 +1δ 4.00-1δ 80.00 60.00 Avg 2.00 40.00 20.00-1δ 0.00 0.00 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
EXHIBIT 5: FINANCIAL DATA Income Statement (RMmil, YE 31 Dec) FY16 FY17 FY18F FY19F FY20F Revenue 132.1 219.5 442.7 650.1 553.3 EBITDA 10.4 41.6 114.6 170.9 147.3 Depreciation/Amortisation (1.7) (1.8) (5.8) (10.4) (15.9) Operating income (EBIT) 8.7 39.8 108.8 160.5 131.4 Other income & associates - - - - - Net interest 2.6 1.7 (6.9) (20.9) (31.0) Exceptional items 0.2 (3.5) - - - Pretax profit 11.5 38.0 102.0 139.6 100.5 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 8.9 18.2 76.0 104.1 75.6 Core net profit 8.7 21.7 76.0 104.1 75.6 Balance Sheet (RMmil, YE 31 Dec) FY16 FY17 FY18F FY19F FY20F Fixed assets 12.1 37.2 82.3 155.7 232.2 Intangible assets 7.3 6.1 6.1 6.1 6.1 Other long-term assets 1.9 87.9 87.9 87.9 87.9 Total non-current assets 21.4 131.2 176.3 249.7 326.2 Cash & equivalent 59.0 46.4 112.7 119.7 92.8 Stock 2.5 0.8 0.8 0.8 0.8 Trade debtors 31.7 25.9 25.9 25.9 25.9 Other current assets 82.9 51.8 298.1 626.5 872.8 Total current assets 176.1 125.0 437.6 772.9 992.3 Trade creditors 15.4 23.9 23.9 23.9 23.9 Short-term borrowings 0.1 0.9 0.9 0.9 0.9 Other current liabilities 19.0 35.8 35.8 35.8 35.8 Total current liabilities 34.5 60.6 60.6 60.6 60.6 Long-term borrowings 0.3 22.0 243.6 539.2 760.9 Other long-term liabilities 1.2 2.3 2.3 2.3 2.3 Total long-term liabilities 1.5 24.3 246.0 541.5 763.2 Shareholders funds 161.0 164.3 284.8 373.5 433.6 Minority interests 0.5 7.1 22.4 47.0 61.1 BV/share (RM) 0.33 0.34 0.55 0.73 0.84 Cash Flow (RMmil, YE 31 Dec) FY16 FY17 FY18F FY19F FY20F Pretax profit 11.5 38.0 102.0 139.6 100.5 Depreciation/Amortisation 1.7 1.8 5.8 10.4 15.9 Net change in working capital (7.0) (44.8) (246.3) (328.4) (246.3) Others (9.6) (2.2) (3.7) 10.0 20.1 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 2.8 31.3 1.4 3.5 3.7 Cash flow from investing (4.9) (7.7) (49.4) (80.3) (88.6) Debt raised/(repaid) (0.7) 22.5 221.7 295.6 221.7 Equity raised/(repaid) - - 60.0 - - 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) 6.2 258.0 255.7 171.6 Net cash flow (26.1) (8.7) 66.3 7.0 (26.9) Net cash/(debt) b/f 85.1 59.0 46.4 112.7 119.7 Net cash/(debt) c/f 59.0 50.3 112.7 119.7 92.8 Key Ratios (YE31 Dec) FY16 FY17 FY18F FY19F FY20F Revenue growth (%) 14.4 66.2 101.7 46.9 (14.9) EBITDA growth (%) (49.2) 298.4 175.3 49.2 (13.8) Pretax margin (%) 8.7 17.3 23.0 21.5 18.2 Net profit margin (%) 6.7 8.3 17.2 16.0 13.7 Interest cover (x) nm nm 15.9 7.7 4.2 Effective tax rate (%) 21.5 35.3 10.4 7.8 10.8 Dividend payout (%) 163.4 73.1 20.3 14.8 20.4 Debtors turnover (days) 88 43 21 15 17 Stock turnover (days) 1 - - - - Creditors turnover (days) 7 10 10 9 - Source: Company, AmInvestment Bank Bhd estimates AmInvestment Bank Bhd 4
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