Prestariang - A University, at Last

Prestariang announced that the Minister of Higher Education has, vide its Letter of Invitation dated 22 June 2012, invited its wholly-owned subsidiary, Prestariang Education SB, to set up a private higher education institution to be known as University of Computing in Malaysia. However, given the lack of affirmative details, we could only quickly analyse the potential impact on Prestariang’s earnings going forward. We maintain our BUY call, with our FV upgraded to RM2.15, based on a 10x FY13 PER.

Finally, it all makes sense. In early April this year, Prestariang set up a new wholly-owned subsidiary called Prestariang Education SB with a paid up capital of RM20m. We had previously speculated that this subsidiary was set up with the aim of enhancing the company’s presence in the higher education space. This latest announcement, which we deem within expectation, also puts our earlier speculation spot-on. This development is a huge positive as it will propel the company’s presence in the ICT and higher education business.

Creating a recurring earnings stream. Currently, almost all of Prestariang’s earnings are based on contract income, which is typically awarded by government ministries. Some of these contracts are one-off in nature while some are subject to renewal by the relevant ministries upon expiry. Should Prestariang set up a university in Malaysia, it would be creating its maiden recurring earnings stream. Our brief calculations show that the university could contribute some RM15m-RM20m p.a. to the group’s bottom-line, assuming an enrolment of 3k students at an annual average tuition fee of RM30k.

Potential tie-up with Taylor’s. Taylor’s Education, one of Malaysia’s largest education institutions, now holds 1.5m shares in Prestariang. Its chief Dato' Loy Teik Ngan, who is also Prestariang’s non-executive director, directly holds 275k shares in the company. With this announcement, we believe Taylor’s experience could come in handy and as such, do not discount the possibility of potential collaborations between the two.

BUY. We revisit our model and tweak up our FY13 EPS forecast by 4.1% to incorporate the maiden contribution from the proposed university while leaving our FY12 forecasts unchanged. Upon formal acceptance of the invitation, Prestariang will officially become an education counter, addressing previous investor perception that it is more of a technology play. Hence, we are pegging a higher PER of 10x (from 8x previously) in anticipation of Prestariang’s new formal education venture giving sentiment a shot in the arm. Rolling forward our valuation to FY13, our FV now stands at RM2.15. Maintain BUY, with Prestariang remaining the top pick under our education coverage.  

Source: OSK