(March 30, RM1.28)
Maintain buy with a fair value of RM2.20: Prestariang Bhd has received the letter of award from Lembaga Hasil Dalam Negeri Malaysia (LHDN) for the supply of Microsoft software licences, products and services under the Master Licensing Agreement 3.0 (MLA 3.0) from March 1, 2018 to Feb 28, 2021.
We understand that the value of RM38.2 million under this award is part of the RM222.6 million contract awarded in January in relation to the supply of Microsoft products to all government agencies. Therefore, there is no impact on our earnings forecasts.
The full contract is projected to contribute about RM74.2 million to the group’s software services division annually. Historically; the division has registered revenue of RM94 million to RM125.3 million for financial year 2015 (FY15) to FY17, and MLA typically constitutes 60% to 70% of the division’s revenue.
We are projecting a 17% growth for the division in FY18, underpinned by the contract and Prestariang’s plans to introduce new licences and services from prominent software partners like Adobe and IBM.
The software services division made up 57% to 89% of group revenue for FY15 to FY17. Its revenue concentration has reduced significantly in FY17 (to 57%) due to the contribution from Sistem Kawalan Immigresen Nasional (SKIN), and is expected to reduce further to about 30% once SKIN revenue fully kicks in.
We continue to like Prestariang for its leading position in the information and communications technology training and software distribution space in Malaysia, the award of SKIN — which is expected to beef up net profit by more than eight times from FY16 to FY18 forecast — and 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 solution provider. The company currently trades at a one-year forward price-earnings ratio (PER) of 8.7 times, while its regional comparables, Chinasoft International and Hexaware Technologies, are trading at a forward PER of 20.5 to 20.7 times. — AmInvestment Bank, March 30