Price Fair Value 52-week High/Low Key Changes Fair value EPS Company report Lavis Chong RM2.35 RM2.60 RM2.53/RM1.69 PRESTARIANG TECHNOLOGY (PRES MK EQUITY, PSTG.KL) 23 May 2017 UniMy closer to breakeven chong-guang-wei@ambankgroup.com 03-2036 2291 Rationale for report: Company result Investment Highlights BUY (Maintained) We reaffirm our BUY recommendation on Prestariang with unchanged forecasts and fair value of RM2.60/share, pegged to FY18F PE of 21x. Prestariang is currently trading at a CY18F PER of 18.5x, 0.5SD below its 5-year historical average. YE to Dec FY16 FY17F FY18F FY19F Revenue (RM mil) 132.1 483.3 840.3 872.1 Core net profit (RM mil) 8.9 32.9 61.5 71.3 FD Core EPS (sen) 1.8 6.8 12.7 14.7 FD Core EPS growth (%) (43.9) 270.0 87.0 16.0 Consensus Net Profit (RM mil) - 37.2 61.3 66.8 DPS (sen) 3.0 3.8 6.8 8.0 PE (x) 128.0 34.6 18.5 16.0 EV/EBITDA (x) 101.5 25.1 13.2 11.1 Div yield (%) 1.3 1.6 2.9 3.4 ROE (%) 5.4 19.8 33.2 33.1 Net Gearing (%) nm nm nm nm Stock and Financial Data Shares Outstanding (million) 484.0 Market Cap (RMmil) 1,137.4 Book Value (RM/share) 0.33 P/BV (x) 7.1 ROE (%) 5.4 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 (%) 4.9 1.7 7.3 Relative (%) 1.0 (6.6) (1.5) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 May-12 May-13 May-14 May-15 May-16 PRES MK FBMKLCI Index 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Prestariang s 1QFY17 core net profit came in at RM3.3mil (+22% YoY; +22% QoQ). We deem Prestariang's 1QFY17 net profit to be within estimates as we expect the group's earnings to pick up in the next few quarters on the back of higher student enrollments. Excluding projected contributions from Sistem Kawalan Imigresen Nasional (SKIN), which are expected to come in 2HFY17, the 1Q profit accounted for 18% of our full-year forecast. The weak 1QFY17 profit was mainly attributed to less favourable product mix consisting of lower contribution from ICT training (Academy) services, which offers better GP margin (>40%). In addition, GP margin of software licensing and distribution slipped by 5ppts from 22% in 4QFY17 to 17% in 1QFY17 due to higher costs of software licenses resulting from a stronger USD. On a positive note, 1QFY17 revenue picked up sharply by 78% QoQ and 8% YoY due to higher orders for software licenses, particularly Microsoft's products. Going forward, we believe GP margin of software licensing and distribution would recover to 19% if USD/MYR stays at current level of 4.30 vs. 4.42-4.49 in 1QFY17. Recently, the group's wholly-owned Prestariang Systems was granted a 30% tax exemption for five years from January 2017 onwards. As a result, the company's effective tax rate declined from 25% in 1QFY16 to 16% in 1QFY17. In the education segment, both revenue and PBT were relatively unchanged as UniMy's key intake dates are April and August. In April 2017, Prestariang saw its highest student intake of 200 students, bringing its total student population close to 400 students as of May 2017. This means that the segment is now closer to our estimated breakeven level of 480 students. For the upcoming intake in August 2017, management expects another 200-300 students. We believe this is achievable given the effectiveness of UniMy's execution in April 2017. If this materialises, Prestariang is on track to achieve our full-year forecast. For SKIN, management has said that a concession arrangement is currently being finalised, after which the project will be allowed to commence. We expect the deal to be finalised by end of 1HFY17.
EXHIBIT 1: PRESTARIANG'S 1QFY17 RESULT COMPARISON YE 30 Dec (RM mil) 1QFY16 1QFY17 YoY (%) 4QFY16 1QFY17 QoQ (%) Turnover 40.7 43.9 7.9 24.7 43.9 77.6 EBITDA 3.3 3.7 12.8 1.8 3.7 >100 Depreciation/Amortisation (0.4) (0.4) (1.4) 0.6 (0.4) nm EBIT 2.8 3.2 14.5 2.4 3.2 37.2 Interest expense 0.0 0.0 nm (0.1) 0.0 nm Interest income 0.9 0.6 (26.3) 0.7 0.6 (7.6) Pre-Associates profit 3.7 3.9 5.1 3.0 3.9 29.9 Associates 0.0 0.0 nm 0.0 0.0 nm Pre-Exceptionals profit 3.7 3.9 5.1 3.0 3.9 29.9 Exceptionals 0.4 (0.1) nm (1.3) (0.1) 94.7 Pre-tax profit 4.1 3.8 (5.7) 1.7 3.8 >100 Taxation (1.0) (0.6) 40.4 (0.1) (0.6) (308.8) Minority interest 0.0 0.0 nm (0.2) 0.0 nm Net Profit 3.0 3.2 5.9 1.4 3.2 >100 Core Net Profit 2.7 3.3 22.4 2.7 3.3 22.4 Basic EPS (sen) 0.63 0.66 4.8 0.29 0.66 >100 DPS (sen) 0.75 0.75 0.0 0.75 0.75 0.0 EBITDA margin (%) 8.0 8.4 7.2 8.4 Pretax margin (%) 10.0 8.7 7.0 8.7 Effective tax (%) 25.1 15.8 8.6 15.8 Segmental Breakdown (RMmil) Revenue Software Licensing & Distribution 36.7 39.1 6.6 22.6 39.1 72.9 ICT Training 3.0 2.5 (18.3) 0.1 2.5 >100 Education 0.6 0.7 16.9 0.7 0.7 0.6 Employment services 0.4 1.6 >100 1.2 1.6 28.2 Others 4.8 3.6 (25.1) 6.0 3.6 (39.9) Eliminations (4.8) (3.6) 25.1 (6.0) (3.6) 39.9 Total 40.7 43.9 7.9 24.7 43.9 77.6 PBT Software services & ICT training 6.2 5.7 (8.7) 3.5 5.7 61.6 Education (1.5) (1.4) 5.6 (1.5) (1.4) 6.1 Employment services (0.0) 0.3 nm 0.0 0.3 >100 Others 4.2 2.9 (30.4) 5.7 2.9 (48.9) Eliminations (4.8) (3.6) 25.1 (6.0) (3.6) 39.9 Total 4.1 3.8 (5.7) 1.7 3.8 >100 Source: Company, AmInvestment Bank Bhd AmInvestment Bank Bhd 2
EXHIBIT 2: FINANCIAL DATA Income Statement (RMmil, YE 30 Jun) FY15 FY16 FY17F FY18F FY19F Revenue 115.5 132.1 483.3 840.3 872.1 EBITDA 20.6 10.6 42.6 79.1 91.3 Depreciation/Amortisation (1.8) (1.7) (2.0) (2.3) (2.7) Operating income (EBIT) 18.8 8.9 40.6 76.8 88.5 Other income & associates - - - - - Net interest 2.3 2.6 1.5 1.7 2.6 Exceptional items 1.4 - - - - Pretax profit 22.5 11.5 42.1 78.6 91.1 Taxation (5.4) (2.5) (9.1) (16.9) (19.6) Minorities/pref dividends 0.2 (0.2) (0.2) (0.2) (0.2) Net profit 17.2 8.9 32.9 61.5 71.3 Core net profit 15.8 8.9 32.9 61.5 71.3 Balance Sheet (RMmil, YE 30 Jun) FY15 FY16 FY17F FY18F FY19F Fixed assets 13.0 12.1 12.2 14.5 17.7 Intangible assets 5.2 8.1 8.1 8.1 8.1 Other long-term assets 1.2 1.2 1.2 1.2 1.2 Total non-current assets 19.3 21.4 21.5 23.8 27.0 Cash & equivalent 85.1 59.0 70.6 96.8 128.6 Stock 1.8 2.5 2.5 2.5 2.5 Trade debtors 31.5 31.7 31.7 31.7 31.7 Other current assets 66.7 82.9 82.9 82.9 82.9 Total current assets 185.0 176.1 187.7 213.9 245.7 Trade creditors 15.7 15.4 15.4 15.4 15.4 Short-term borrowings 0.1 0.1 0.4 0.4 0.8 Other current liabilities 17.2 19.0 19.0 19.0 19.0 Total current liabilities 33.0 34.5 34.9 34.8 35.3 Long-term borrowings 0.6 0.3 1.9 1.7 3.5 Other long-term liabilities 1.2 1.2 1.2 1.2 1.2 Total long-term liabilities 1.8 1.5 3.1 2.9 4.7 Shareholders funds 169.3 161.0 170.7 199.2 231.8 Minority interests 0.3 0.5 0.6 0.8 1.0 BV/share (RM) 0.35 0.33 0.35 0.41 0.48 Cash Flow (RMmil, YE 30 Jun) FY15 FY16 FY17F FY18F FY19F Pretax profit 22.5 11.5 42.1 78.6 91.1 Depreciation/Amortisation 1.8 1.7 2.0 2.3 2.7 Net change in working capital (12.7) (7.0) - - - Others (8.9) (9.6) (10.5) (18.6) (22.2) Cash flow from operations 2.6 (3.4) 33.6 62.2 71.7 Capital expenditure (1.6) (0.9) (2.1) (4.6) (6.0) Net investments & sale of fixed assets (35.4) (6.8) - - - Others 28.2 2.8 1.6 1.9 2.8 Cash flow from investing (8.9) (4.9) (0.6) (2.7) (3.2) Debt raised/(repaid) (0.3) (0.7) 2.0 (0.2) 2.2 Equity raised/(repaid) - - - - - Dividends paid (15.7) (15.7) (18.2) (32.9) (38.7) Others 3.6 (1.5) (0.1) (0.2) (0.2) Cash flow from financing (12.5) (17.9) (21.4) (33.3) (36.7) Net cash flow (18.7) (26.1) 11.6 26.2 31.8 Net cash/(debt) b/f 103.8 85.1 59.0 70.6 96.8 Net cash/(debt) c/f 85.1 59.0 70.6 96.8 128.6 Key Ratios (YE 30 Jun) FY15 FY16 FY17F FY18F FY19F Revenue growth (%) 46.5 14.4 265.9 73.9 3.8 EBITDA growth (%) (0.7) (48.3) 301.3 85.5 15.3 Pretax margin (%) 19.4 8.7 8.7 9.3 10.4 Net profit margin (%) 14.9 6.7 6.8 7.3 8.2 Interest cover (x) nm nm nm nm nm Effective tax rate (%) 24.2 21.5 21.5 21.5 21.5 Dividend payout (%) 105.2 163.4 70.7 53.5 54.3 Debtors turnover (days) 99 88 24 14 13 Stock turnover (days) 1 1 1 1 1 Creditors turnover (days) 8 7 7 6 6 Source: Company, AmInvestment Bank Bhd estimates AmInvestment Bank Bhd 3
EXHIBIT 3: PB BAND CHART EXHIBIT 4: PE BAND CHART 12.00 200.00 10.00 180.00 160.00 8.00 6.00 +1δ Avg 140.00 120.00 100.00 +1δ 4.00 2.00-1δ 80.00 60.00 40.00 Avg 0.00 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 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 20.00 0.00 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16-1δ AmInvestment Bank Bhd 4
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