CIMB Research retains Add for Prestariang, lower target price

In a statement yesterday, Prestariang said PSSB had signed the Master Licensing Agreement (MLA) 3.0 with the MoF, expanding the scope of its clientele by including public training institutes as Prestariang

KUALA LUMPUR:  CIMB Equities Research’s target price for Prestariang has been reduced from RM2.05 to RM1.89 as it revised its sum-of-parts valuation basis on its National Immigration Control System (SKIN) project. 

It said on Wednesday the potential re-rating catalysts are no delays in the construction of SKIN infrastructure and rise in software sales, while downside risks are delays in SKIN’s construction and continued weak software sales. 

“Maintain Add. Share price could have reached a selling climax today (Tuesday) with 85 million shares traded,” it said.

Year to date, Prestariang’s share price has fallen 71%, underperforming the FBM SmallCap Index which is down 21.8%. 

Since 3Q17, Prestariang has so far recognised RM135m revenue from the construction works for SKIN.

Over the past few months, the new government has been reviewing all public-private partnership projects. 

Early this month, Finance Minister Lim Guan Eng indicated that 45 out of the 67 PPP projects were approved by the government. In addition, Lim also indicated that the government has no plans to cancel any of the PPP projects.

“We believe there is a good chance the new government would approve SKIN soon. It took Prestaring four years to obtain approval for SKIN from the previous government, and the due diligence on SKIN has already been done by the previous government.

“We believe SKIN is a national security project as the existing Immigration Department’s
MyIMMs IT infrastructure network, built in the 1990s, is already outdated and there is an urgent need to replace MyIMMs with a new IT infrastructure with the latest technology.

“We estimate SKIN to be worth RM1.08/share. Assuming a 6% WACC, we estimate SKIN’s value to be around RM750m and since Prestariang owns a 70% equity stake in SKIN, this concession is worth RM525m or RM1.08 per Prestariang share. 

“At the current share price of 44 sen, investors are valuing its existing business on 2018 13 times P/E and assuming zero value for SKIN project,” it said.