KUALA LUMPUR: CIMB Equities Research has downgraded Prestariang Bhd from Add to Reduce and also cut the target price from RM1.77 to only 26 sen after the Home Ministry confirmed the scrapping of the RM3.5bil National Immigration Control System (SKIN) project.
The research house said on Tuesday it had cut FY18-20F earnings by up to 88% to reflect the loss of SKIN’s profit.
“We cut FY18-20F EPS by 73.3-88.2% as we strip out all earnings relating to the SKIN project. We also cut our target price to 26 sen, based on estimated one time price-to-book value (P/BV) excluding SKIN profit (vs. sum-of-parts previously).
“In view of this unexpected negative development, we downgrade our call to Reduce,” it said.
CIMB Research said it had not expected such an outcome.
Prestariang announced that SKIN was not in default of any conditions of the concession agreement and has yet to receive any notice from the Home Minister about SKIN project.
“It is unclear at this juncture how much the government will compensate Prestariang for cancelling the SKIN project.
“Without the SKIN project, Prestariang will be left with two major business activities (1) the sale of Microsoft software to the government, which we estimate could bring in RM15m-RM20m net profit annually. The contract runs from February 2018 to January 2021 and (2) University Malaysia of Computer Science and Engineering (UNIMY) which is currently loss-making at around RM1.5m every quarter.
“Prestariang’s book value per share stood at 32 sen as at end-September but this value could drop to 26 sen per share, if we reverse out SKIN’s earnings that Prestariang has recognised earlier.
“To recap, Prestariang has recognised RM156.3m revenue and RM56.9m EBIT from the SKIN project since 3Q17. At net profit after minority level, we estimate RM29m net profit (or six sen/share) has been recognised for the SKIN project,” it said.
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