By CIMB Research
Target price: RM2.69
PRESTARIANG unit signs a RM105mil deal with INCS, a subsidiary of Imprimerie Nationale S.A. (INSA), appointing INCS as its strategic technology partner to perform work on the Sistem Kawalan Imigresen Nasional (SKIN) project.
INSA acquired the identity management business from Thales Group in May 2017.
CIMB Research said the deal was a positive surprise for Prestariang. It had earlier estimated SKIN’s capital expenditure (capex) to be at RM800mil and the domestic team to handle 30% of SKIN’s capex.
Now, it pointed out that the domestic team is targeted to handle 87% of the capex and development work, and this would translate to a lower capex for SKIN.
CIMB estimated that SKIN’s capex could be reduced by around RM50mil if most of the development costs are incurred locally.
Nevertheless, CIMB said that until a direct confirmation from management, it kept SKIN’s capex assumption at RM800mil.
It also expects Prestariang to finalise its debt funding exercise for SKIN soon and estimate the construction of the SKIN project to generate a 25% pre-tax profit margin over the next three years.
On earnings, CIMB estimated that Prestaring could recognise a total pre-tax profit of RM200mil from SKIN over the next three years and construction profit should peak in FY19, as most of the installation works for SKIN’s infrastructure should already be completed.
In third quarter FY17, Prestariang recognised a maiden RM30mil revenue and RM8.3mil earnings before interest and taxes for the SKIN construction works, CIMB added.
The research house reckoned that at the current share price, Prestariang would not be pursuing a private placement exercise to raise new money to fund its equity portion of SKIN.
Instead, Prestariang could be getting investors to subscribe for SKIN’s equity funding directly.
CIMB has maintained an “add” call on Prestariang on the back of the stock’s sharp price correction over the past two months. The counter is currently trading at a 2018 price-earnings ratio of 8 times, which CIMB suggested that is a good opportunity for investors to accumulate the stock.
A potential re-rating catalyst is the finalisation of SKIN’s debt financing exercise. Risks are further delays in finalising SKIN’s debt financing.