(June 26, RM1.88)
Maintain buy with RM2.25: Prestariang announced a private placement of up to 44 million new shares (10% of its outstanding share base of 440 million) on June 25, which could raise RM70 million to RM80 million. We expect management to utilise the proceeds for new projects, which we believe will soon be unveiled, to beef up its recurring earnings base.
The price of the new shares, while not yet determined, will be fixed at not more than a 10% discount to its volume-weighted average price for the past five trading days. We estimate that the exercise will be completed by the end of the third quarter of 2014.
According to Prestariang’s announcement to Bursa Malaysia, the proceeds will be used for the “development and expansion of its existing business”.
Prestariang is sitting on net cash of close to RM60 million as at its first quarter ended March 31 of financial year 2014 (1QFY14). Netting off the first interim dividend per share of 1.25 sen, we estimate that the company will still have some RM54.5 million in its net cash balance. Post the private placement exercise, its net cash balance is expected to balloon to RM125 million to RM135 million.
Judging by management’s past track record of keeping its balance sheet clean and its minimum 50% dividend payout policy — on top of its existing business requiring minimal capital expenditure — we believe proceeds from the private placement will most likely be used to expand its recurring earnings base.
This is consistent with management’s move to establish University Malaysia of Computer Science and Engineering in 2013. Given that the university is still in the red, we believe that management is likely to be on the lookout for other opportunities to bring in recurring revenue stream.
We take the opportunity to reduce our FY14F earnings per share (EPS) by 14.8%, as we revamp our model due to a change of analysts. Our FY15F EPS is now lower by a more moderate 0.7% as we expect its university arm to record a positive contribution come 2015.
We maintain “buy”, with our target price (TP) fine-tuned to RM2.25 (from RM2.27) based on an unchanged FY15F price-earnings ratio of 17.5 times. Upon completion of the placement, our TP will be diluted to RM2.05. — RHB Research, June 26
This article first appeared in The Edge Financial Daily, on June 27, 2014.