Funding concerns for SKIN job weigh on Prestariang's share price

KUALA LUMPUR: Prestariang Bhd investors sold more than what they bought of the company’s shares yesterday on concerns over the hefty funding it needs for the National Immigration Control System (SKIN) project, but president and CEO Dr Abu Hasan Ismail remains positive on its outlook with an aim to double its revenue for 2017.
The counter fell as much as 8.8% to RM2.17 before closing 19 sen or 8% lower at RM2.19 on some 7.39 million shares traded, giving Prestariang a market capitalisation of RM1.06 billion.
At a media briefing yesterday, Abu Hasan said Prestariang needs to fork out RM1 billion as development cost in the next three years for SKIN.
The financing will consist of internally generated funds, term loans as well as from the capital market which may include sukuk, but he ruled out the a rights issue or a private placement, either of which will take longer time.
Abu Hasan stressed that the huge development cost will not pose a significant impact on the group, whose cash and cash equivalents stood at RM35.88 million as at end-March.
“With the financing, the financial position for SKIN will be guaranteed. So there will be no hiccup,” he said.
Under the deal, Prestariang will be able to rake in an annual payment of RM295 million from the fourth year of the concession agreement, contributing a total return of RM3.5 billion at the end of the concession period of 15 years.
“This is (about) national security and the government has assured us of the payment. As long as you deliver the service, the payment will be assured,” Abu Hasan replied when asked if there is any risk from political uncertainty with the upcoming general election.
Based on a projected profit margin of 20% to 38%, PublicInvest Research, which is maintaining an “outperform” call on Prestariang with a target price of RM2.87, expects the group to be able to generate an additional cash flow of RM59 million to RM112 million a year.
Meanwhile, AmResearch said Prestariang is considering an 80:20 debt-to-equity funding structure for the deal.
“We estimate that the project would require a capex of RM900 million. This means that the group may have to raise RM180 million in equity. Assuming RM2 as the offer price for its equity-raising exercise, there would be a potential dilution from the issuance of 90 million new shares,” it said.
Work on the immigration project will begin in the coming months and is expected to be rolled out by 2021.
Prestariang, a provider of ICT services in talent and software solutions, technology and services as well as education, is eyeing 100% top-line growth target for 2017, to be driven by training and software core businesses.
For the first quarter ended March 31, 2017, it reported a 5.9% increase in net profit to RM3.22 million from RM3.04 million in the previous corresponding period, on the back of a 7.9% rise in revenue to RM43.89 million from RM40.69 million.
Abu Hasan highlighted that the group’s initiative to catch up in the training segment will start to bear fruit and register 100% revenue growth in 2018.
“Revenue from this segment has been slackening due to the changes in landscape and competition … we are confident that with the new initiative, the (100%) growth is possible,” he said.
Meanwhile, the software segment is expected to register 25% growth revenue in 2018 with the support from the increase in product mix and new client acquisition programme.
For the education arm, Prestariang said it is on track to break even this year, after being in the red since 2013. Its University Malaysia of Computer Science & Engineering had 400 students as at June 2017.