KUALA LUMPUR: CIMB Equities Research is neutral on Prestariang after its subsidiary Prestariang Skin Sdn Bhd (PSkin) signed a RM3.5bil, 15-year concession agreement with the Home Affairs Ministry to implement an integrated core immigration system known as SKIN. However, it has an Add call on the company with a target price of RM3.
The new border control system -- Sistem Kawalan Imigresen Nasional -- will replace the current Malaysian Immigration System (myIMMs).
Its 70% owned-PSkin would undertake the design, financing, development and commissioning of SKIN as well as carry out maintenance services.
“We are neutral about the development as Prestariang’s announcement has come with both positive and negative elements.
“The positives are potentially higher construction and concession earnings for SKIN. In addition, project internal rate of return (IRR) for SKIN could be higher if SKIN obtains MSC status.
“The main negative is the revelation that Prestariang will only have an effective 70% stake in SKIN. We maintain our EPS forecasts and target price (RM3). The stock remains an Add,” it said.
Elaborating on the positives, CIMB Research said SKIN could potentially offer higher-than-expected construction and concession earnings compared to its earlier forecast.
“This is mainly due to potential cost savings as the government wants most of the development works on SKIN to be done locally instead of by its French foreign technology partner, Thales.
“This could result in a higher-than-expected IRR compared to our earlier 13% IRR project forecast. The project IRR could get a further boost if the company receives MSC status for SKIN, which could mean tax-free income for SKIN for at least five years.
As for the negatives, it said Prestariang would only have an effective 70% stake in SKIN, with the remaining 30% stake held by the founders of and “brains” behind SKIN.
These three men are still working on the SKIN project. Prestariang’s effective stake in SKIN could fall further if the company sells a direct stake in SKIN.
However, Prestariang has indicated it would ultimately own more than 60% stake in SKIN.
As for its university operations, it expects UniMY to break even in 2017. UniMY currently has 400 students and is targeted to reach 600 students by September.
This is a positive news for the company as UniMY has been losing RM6mil to RM7mil annually over the past few years. UniMY’s break-even level is around 500 students, says the management.
“We maintain our earnings forecasts for now as we believe the potential earnings boost from higher construction and concessions earnings for SKIN should more than offset the fact that Prestariang will be holding just a 70% or lower stake in SKIN.
“We would only look to review SKIN’s earnings when we see signs that the locals are doing of the development works for SKIN,” said CIMB Research.
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