PUBLIC INVESTMENT BANK PublicInvest Research Results Review Thursday, November 26, 2015 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 RM2.99 Current Price RM2.46 Expected Return 21.5% Market Main Sector Technology Bursa Code 5204 Bloomberg Ticker PRES MK Shariah-compliant Yes Some Catching Up To Do Prestariang s total net profit of RM14m for 9MFY15, which fell more than 25% compared to last year, only made up 40% and 29% of our and consensus forecasts. The lower-than-expected results were mainly due to i) continuous underperformance of the education arm, ii) weaker margins from the software & services and academy segments and iii) lower sales contribution from the Microsoft Licensing Agreement contracts. As it is seems highly unlikely that our previous earnings forecasts for FY15 will be achieved, we are lowering our expectations correspondingly by 29%, though our FY16-17 numbers remain unchanged. Pending more clarification from the analyst briefing today, we continue to maintain our Outperform call with an unchanged TP of RM2.99. SHARE PRICE CHART 3.00 2.50 2.00 1.50 1.00 0.50 - Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 52 Week Range (RM) 1.31-2.73 3-Month Average Vol ( 000) 1,420.5 SHARE PRICE PERFORMANCE Absolute Returns Relative Returns KEY STOCK DATA 1M 3M 6M 8.7 50.6-1.9 8.8 38.6 2.1 3QFY15 revenue dropped 4.7% YoY to RM16.1m. Group revenue dropped to RM16.1m, mainly affected by weaker sales contribution from the academy segment which was down 24%. On the other hand, software & services registered a 33% jump in sales, driven by Microsoft Master Licensing Agreement 2.0. The education segment, which operates the UniMy University, also posted a 33% jump in sales as more students were recruited during the quarter. 3QFY15 earnings fell 5.8% YoY to RM4.9m. 3Q earnings were weighed down by lower contribution from the higher-margin academy segment. In addition, an RM1m tax expense was charged on its interest income despite it enjoying a tax-free status. The education segment continued to face challenges though with a narrower net loss of RM1.3m. YTD, it has posted a total net loss of RM4.2m however. Maintaining our positive views. Despite the unexciting quarterly results, we are positive on the company s outlook driven by two long-term recurring projects, Sistem Kawalan & Imigresen Nasional and the Programme for International Student Assessment (PISA), which will become the new earnings growth drivers for the company apart from existing projects like 3P Industry-based certification, IC-CITIZEN and RBTCS programme as well as Master Licensing Agreement 2.0. Market Capitalisation (RM m) No. of Shares (m) 1,189.0 484.0 MAJOR SHAREHOLDERS Dr. Abu Hassan Bin Ismail KWAP AIA Bhd % 27.3 11.8 9.7 KEY FINANCIAL SUMMARY FYE Dec (RM m) 2013A 2014A 2015F 2016F 2017F CAGR Revenue 119.3 78.8 134.1 178.6 189.1 12.2% Gross Profit 67.2 38.5 51.0 82.2 87.0 6.7% Pre-tax Profit 42.2 20.2 24.8 55.6 60.3 9.3% Core Net Profit 42.1 20.2 24.8 55.6 60.3 9.4% EPS (Sen) 19.2 4.2 5.1 11.5 12.5-10.2% P/E (x) 17.1 58.9 48.0 21.4 19.7 DPS (Sen) 5.4 4.1 3.2 7.2 7.8 Chong Hoe Leong T 603 2268 3015 F 603 2268 3014 E chonghoeleong@publicinvestbank.com.my Dividend Yield 3.6 1.7 1.3 2.9 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) 3Q15 3Q14 2Q15 QoQ YoY YTD YTD YoY Comments FY15 FY14 Revenue 16.1 16.9 35.0-54.0-4.7 91.1 66.5 37.0 Better sales contribution from software & services, which offset weaker education contribution Cost of sales -5.7-7.7-25.2-77.4-26.0-63.2 34.3-284.3 Gross profit 10.4 9.2 9.8 6.1 13.0 27.9 32.2-13.4 Other income 1.0 1.1 1.2-16.7-9.1 3.2 2.1 52.4 Dividend income Operating profit 11.4 10.3 11.0 3.6 10.7 31.1 34.3-9.3 Administrative -5.1-4.7-5.5-7.3 8.5-14.7-14.3 2.8 expenses Other expenses -0.4-0.4-0.5-20.0 0.0-1.3-1.4-7.1 Finance costs 0.0 0.0 0.0 - - -0.1 0.0 - Pre-tax profit 5.9 5.2 5.0 18.0 13.5 15.0 18.6-19.4 Taxation -1.0 0.0 0.0 - - -1.0 0.0 0.0 Tax on interest income Net profit 4.9 5.2 5.0-2.0-5.8 14.0 18.6-24.7 Dragged by continuous losses in education arm EPS (sen) 1.0 1.1 1.0-2.0-5.8 2.9 3.8-24.7 DPS (sen) 1.0 1.0 1.0 0.0 0.0 2.8 3.7-25.5 Ex-date: 08 Dec 2015 Gross Margin 64.6 54.4 28.0 - - 30.6 48.4 - Pre-tax Margin 36.6 30.8 14.3 - - 16.5 28.0 - Net Margin 30.4 30.8 14.3 - - 15.4 28.0 - 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) 3Q15 3Q14 2Q15 QoQ Revenue: Software License Distribution & management YoY YTD FY15 YTD FY14 YoY Comments 7.0 5.2 26.5-73.6 34.6 69.2 38.8 78.4 Supported by better sales from Microsoft Licensing Agreement 2.0 ICT Training & 8.5 11.2 7.9 7.6-24.1 20.3 26.4-23.1 Certification Education 0.6 0.5 0.6 0.0 20.0 1.6 1.3 23.1 Total 16.1 16.9 35.0-54.0-4.7 91.1 66.5 37.0 Profit Before Taxation: ICT Services and Distribution 7.7 6.9 6.7 14.9 11.6 20.5 25.5-19.6 Driven stronger margin contribution from IC Citizen certification Education -1.3-1.5-1.3 0.0-13.3-4.3-4.9-12.2 Others -0.6-0.3-0.3 100.0 100.0-1.3-2.0-35.0 Total 5.8 5.1 5.1 13.7 13.7 14.9 18.6-19.9 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) 2013A 2014A 2015F 2016F 2017F Revenue 119.4 78.8 134.1 178.6 189.1 Gross Profit 67.2 38.5 51.0 82.2 87.0 Other Income 2.4 3.1 3.5 3.4 3.8 Administrative Expenses -25.5-19.0-27.1-27.4-27.7 Other Expenses -1.6-2.2-2.4-2.5-2.7 Finance Costs -0.2-0.2-0.2-0.1-0.1 Pre-tax Profit 42.2 20.2 24.8 55.6 60.3 Income Tax 0.0 0.0 0.0 0.0 0.0 Effective Tax Rate 0.0 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 0.0 Net Profit 42.1 20.2 24.8 55.6 60.3 Growth Revenue 8.4-34.1 70.2 33.2 5.9 Gross Operating Profit 29.4-42.8 32.4 61.2 5.9 Net Profit 12.9-52.0 22.8 124.1 8.6 BALANCE SHEET DATA FYE Dec (RM m) 2013A 2014A 2015F 2016F 2017F Fixed assets 11.6 13.1 15.2 16.9 18.5 Other long-term assets 2.6 3.4 3.4 3.4 3.4 Cash at bank 45.1 106.4 105.4 115.6 134.9 Other current assets 56.4 56.7 70.7 81.5 84.1 Total Assets 115.7 179.6 194.8 217.4 240.8 Short-term borrowings 115.7 0.3 0.3 0.3 0.3 Long-term borrowings 1.0 0.8 0.8 0.8 0.8 Payables 8.2 5.5 11.3 13.2 13.9 Other liabilities 9.4 4.1 4.1 4.1 4.1 Total Liabilities 18.7 10.7 16.5 18.4 19.1 Shareholders Equity 97.0 168.9 178.2 199.1 221.7 Total Equity and Liabilities 115.7 179.6 194.8 217.4 240.8 PER SHARE DATA & RATIOS FYE Dec 2013A 2014A 2015F 2016F 2017F Book Value Per Share 44.2 0.3 0.4 0.4 0.5 NTA Per Share 44.2 0.3 0.4 0.4 0.5 EPS (sen) 19.2 4.2 5.1 11.5 12.5 DPS (sen) 12.0 4.1 3.2 7.2 7.8 Payout Ratio 62.5 62.5 62.5 62.5 62.5 ROA 36.4 11.2 12.7 25.6 25.1 ROE 43.4 12.0 13.9 27.9 27.2 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. No reliance upon such statement or usage by the addressee/anyone shall give rise to any claim/liability for loss of damage against PIVB, Public Bank Berhad, its affiliates and related companies, directors, officers, connected persons/employees, associates or agents. This document is not and should not be construed or considered as an offer, recommendation, invitation or a solicitation of an offer to purchase or subscribe or sell any securities, related investments or financial instruments. Any recommendation in this document does not have regards to the specific investment objectives, financial situation, risk profile and particular needs of any specific persons who receive it. We encourage the addressee of this document to independently evaluate the merits of the information contained herein, consider their own investment objectives, financial situation, particular needs, risks and legal profiles, seek the advice of their, amongst others, tax, accounting, legal, business professionals and financial advisers before participating in any transaction in respect of any of the securities of the company(ies) covered in this document. PIVB, Public Bank Berhad, our affiliates and related companies, directors, officers, connected persons/employees, associates or agents may own or have positions in the securities of the company(ies) covered in this document or any securities related thereto and may from time to time add or dispose of, or may be materially interested in, any such securities. Further PIVB, Public Bank Berhad, our affiliates and related companies, associates or agents do and/or seek to do business with the company(ies) covered in this document and may from time to time act as market maker or have assumed an underwriting commitment in the securities of such company(ies), may sell them or buy them from customers on a principal basis, may have or intend to accommodate credit facilities or other banking services and may also perform or seek to perform investment banking, advisory or underwriting services for or relating to such company(ies) as well as solicit such investment advisory or other services from any entity mentioned in this document. The analyst(s) and associate analyst(s) principally responsible for the preparation of this document may participate in the solicitation of businesses described aforesaid and would receive compensation based upon various factors, including the quality of research, investor client feedback, stock pickings and performance of his/her recommendation and competitive factors. Hence, the addressee or any persons reviewing this document should be aware of the foregoing, amongst others, may give rise to real or potential conflicts of interest. 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