ONE could call Dr Abu Hasan Ismail, CEO and founder of Prestariang Bhd, the consummate entrepreneur. Early on, he saw vast potential and opportunity in the business world and took the leap from academia. “I tendered my resignation at 12 noon the day after my students had their convocation. The academic arena is limiting to some extent, but business gives me the freedom to do what I want, plus they (the university) can't pay me enough,” he says.
The Main Market-bound Prestariang has two core businesses information and communication technology (ICT) training and certification as well as software licence distribution and management. It sells these services in a bundle, meaning the company provides ICT training and certification alongside the supply of licences for the software for which it offers training and certification. The certification courses, targeted at university students and government agencies, include training in the use, application and provision of technical support for software products from the likes of Microsoft, IBM, Oracle, CompTIA and Adobe.
Prestariang has a few things going for it. For one, it is banking on its “mobile certification” business model to keep costs and capital expenditure low while still expanding to new markets. A July 12 research report from Jupiter Securities states that Prestariang maximises the training and certification facilities at designated centres in 14 public universities, selected polytechnics and community colleges and six government training centres in Malaysia. It also leverages on its partnership with the US-based Certiport Inc to distribute its homegrown training programmes to approximately 10,000 training centres in 42 countries. And while it will be expanding to Penang, Johor and Kuching, it intends to rent rather than buy premises for training.
Prestariang has an earnings growth story to tell. Its revenue fell consistently from financial year 2006 (FY06) to FY09, picking up only in FY10. But its profit after tax (PAT) grew year after year, rising to its highest level in 2010. The first quarter of 2011 also bodes well for the company. It reported a net profit of RM11.3mil on the back of RM37mil revenue.
According to a July 14 HwangDBS Vickers Research report, this is a strong start when compared with its RM58.5mil full-year revenue and RM15.1mil net profit in FY10. “Backed by the current outstanding order book of RM145.3mil and new contract wins, we have projected net profit growth of 71.4% year-on-year (y-o-y) to RM25.9mil this year and 8.8% to RM28.2m next year,” it said.
But Prestariang's Achilles heel may be its heavy reliance on government contracts. The Government accounted for 89.5% of its revenue last year, the bulk of which (63%) came from the Higher Education Ministry (MOHE). Since the Government has been Prestariang's target customer from the beginning, it has contributed as much as 96.4% of the company's revenue in FY09.
Abu Hasan is keenly aware of this. “I was once told that a business has three legs: government, the private sector, and the overseas market. Currently, the government leg overwhelms the rest. We are thus diversifying our client base,” he explains. In 2010, Prestariang reduced its dependency on MOHE by securing contracts with the Inland Revenue Board, Microsoft Malaysia and the Education Ministry. In fact, Abu Hasan adds, a significant amount of its revenue for the first quarter of FY11 came from the private sector. For this year, it aims to get 30%-40% of its revenue from the private sector and 10% from overseas.
In the near term, Prestariang will make full use of its contracts with the Government. “They are good paymasters, which gives us the stability to grow and ensures the sustainability of the business for the next few years,” Abu Hasan says. The prospectus notes that the aggregate value of government contracts is higher than contracts with the private sector and assures a “continuous revenue stream and less risk of non-payment during the duration of these contracts”.
Prestariang will invest the funds raised in the IPO primarily on research and development to create new homegrown training and certification programmes on such subjects as English, “green information technology” and Islamic finance. In early July, it signed a memorandum of understanding with the International Islamic University Malaysia to develop the Islamic finance course. Abu Hasan sees a future in homegrown programmes as they bring in the higher margins.
The ICT training and certification portion of the business contributed 39.4% of Prestariang's revenue in FY10, while the software licensing segment made up the remaining 60.6%. However, training and certification contributed to 55.4% of its gross profit, while the licensing business accounted for 44.6%. At a gross margin of 57.2%, the former is a much more attractive proposition than licensing.
The dividend policy is 50% of the company's PAT until 2014. HDBS is bullish on Prestariang: “For the rest of FY11, we expect a strong performance to be underpinned by an outstanding order book of RM145.3mil”. HDBS forecasts the company will grow its revenue in FY11 by 55.2% y-o-y to RM90.8mil and 3.8% y-o-y to RM94.3mil in FY12, on the conservative assumption that no new major contracts will be won.
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