CIMB Equities Research has downgraded Prestariang Bhd from Add to Reduce and also cut the target price from RM1.77 to only 26 sen.
KUALA LUMPUR: CIMB Equities Research is retaining its reduce call for Prestariang after the unit filed a legal claim totalling RM732.8mil against the government for the loss of the SKIN concession project.
“This news is negative as this suggests negotiations between both parties have broken down. Prestariang remains a Reduce. The legal case with the government could be a long-drawn affair, in our view,” the research house said on Tuesday.
CIMB Research retained its target price of 26 sen which was about half of the last traded price of 53 sen.
Prestariang SKIN Sdn Bhd had sued the government for its unilateral termination of the Sistem Kawalan Imigresen Nasional (SKIN) project by way of expropriation. The sum payable is calculated based on the contractual formula provided in the concession agreement (CA) which had been agreed to by the government.
Both parties had earlier engaged in a few rounds of negotiations after the government cancelled the SKIN project but were unable to reach an amicable settlement on the quantum.
As a last resort, the board of Prestariang had to file the suit. In its legal claim, PSKIN highlighted that the concession agreement clearly spells out the government’s obligations in the event that the SKIN project is unilaterally terminated by way of expropriation.
“Prestariang indicated that PSKIN has never defaulted on the concession agreement,” it said.
“The RM732.8mil compensation that PSKIN is seeking is much higher than our RM520mil estimate, i.e. the net present value (NPV) of the availability charges (similar to power purchase agreements).
“However, we do not have the finer details of the concession agreement. At RM732.8mil, compensation to Prestariang (Prestariang owns a 70% stake in PSKIN) is RM513mil or RM1.06 per Prestariang share. This would be 46 sen above its current share price.
“According to the concession agreement, the government is supposed to pay the full compensation by 19 Jul 2019. However, Prestariang’s legal case against the government may be a long drawn affair.
“We are also unsure if there would be any negative impact on its other businesses with the government, like the MLA3.0 project. The MLA3.0 is a contract for the sale of Microsoft software to the government’s agencies nationwide, from February 2018 to January 2021,” CIMB Research said.
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