Prestariang‟s net profit of RM6.4m for the 1Q, which was 28% lower compared to last year, only accounted for 14% and 12% of our and consensus full-year forecasts respectively. The weaker results were mainly due to the delayed projects which will spill over to the second half this year. On the education arm, the group continues to make losses and is only expected to turnaround in 2H. Meanwhile, a first interim dividend of 1.25sen was declared for the quarter. We downgrade from Outperform to Neutral call with a higher TP of RM1.91 after rolling over our valuations to FY15 as we see a limited potential upside at current valuations.

Earnings down to RM6.4m. 1Q net profit was down 28.9% to RM6.4m while revenue declined 21.4% compared to 1QFY13. Software license distribution & management divisions posted higher sales revenue, up 48% while ICT and O&G training and certification posted lower contribution, down 55% to RM8m sales. The major reason was due to lower number of training classes conducted by the training segment as part of its projects would spill over to 2H.

Profit margin remains above 30%. Despite lower sales revenue, net profit margin remains strong, standing at 31% compared to 34% in 1QFY13.

Expecting higher earnings this year. This year, we are expecting to see more contributions from Oil & Gas (O&G)-related training while its education arm would turn around, compared to a loss of RM6.5m in 2013. We understand efforts and more aggressive plans have been tabled to stop the bleeding in the education business.

Downgrade to Neutral call. Though the 1Q results were weaker than our full-year earnings estimates, we keep our forecast unchanged as we expect better prospects in 2H. However, we downgrade the company from Outperform to Neutral with a higher TP of RM1.91 based on 16x multiple to FY15 EPS as we see a limited potential upside at current valuations.

Source: PublicInvest Research - 29 May 2014