Procurri Corporation Limited - DBS Research 2016-09-16: Promising player in a high growth sector

Procurri Corporation Limited - DBS Vickers 2016-09-16: Promising player in a high growth sector PROCURRI CORPORATION LIMITED BVQ.SI

Procurri Corporation Limited - Promising player in a high growth sector

  • Global provider of data centre equipment and maintenance services.
  • Proxy to cloud and data centre markets; offers 25% earnings CAGR over FY15-18.
  • Superior margins due to integrated business model.
  • Initiate with BUY and TP of S$ 0.67 for 26% potential upside.


Global provider of data centre equipment and independent maintenance services. 

  • Procurri Corporation Limited (Procurri) is able to supply pre-owned hardware in over 80 countries, which is sourced globally. Moreover, it is one of the few players offering both hardware resale and independent maintenance services.


Proxy to growth of cloud services and data centres.

  • Enterprises and cloud providers are increasingly brand agnostic with preference towards cost-effective, quality hardware. This coupled with independent maintenance services can translate to cost savings of up to 60%. This shift is even more apparent as enterprises want to extend the life of their IT infrastructure before migrating to cloud. 
  • Market research company, Frost & Sullivan, projects the hardware resale and independent maintenance services market to grow at 16.9% and 15.7% CAGR respectively over 2015-20.


Initiate with BUY. 

  • Procurri is likely to register 25% earnings CAGR over FY15-18F aided by potential acquisitions in 4Q16. 
  • We initiate Procurri with TP of S$0.67 pegged at 11.3x FY17F normalised earnings. 
  • Our PE multiple of 11.3x is based on 5% premium to the average PE of comparable companies due to its superior growth prospects.


Key investment risks. 

  1. Any delay in potential acquisitions could hurt Procurri as we project S$1m and S$4m profit contribution in FY16F and FY17F from acquisitions respectively.
  2. Rapid technological changes, evolving industry standards, new product and service introductions may render Procurri’s products and services obsolete.



SWOT Analysis 


Strengths 

  • Global network in over 80 countries with offices across the US, the UK, Mexico, Singapore and Malaysia.
  • A leading integrated player in both hardware resale and independent maintenance services businesses. Only player to emerge as a “Champion” in Frost & Sullivan’s “hardware resale” and “independent maintenance services” matrix.
  • Customised hardware and maintenance solutions, compared to traditional standardised services provided by Original Equipment Manufacturers (OEMs).
  • Strong M&A execution track record since incorporation.
  • Experienced management team with average of more than 20 years of industry experience.

Weakness 

  • Risks from integration of acquired businesses. 
  • Limited operating history as a group (we note that individual entities have considerable operating history). 
  • Procurri is exposed to contractual liability risk for issues with Procurri’s products and services which could lead to substantial charges against Procurri.

Opportunities. 

  • Constantly increasing demand for cloud and data centre resources. 
  • Changing attitudes towards IT hardware and equipment, i.e. increasingly brand agnostic, shifting focus on quality and cost. 
  • Uptick in adoption of outsourced data centre services in Asia-Pacific. 
  • Growth in demand for IT Asset Disposition services.

Threats 

  • Highly competitive landscape with both international and domestic competitors. 
  • Obsolescence of IT hardware and equipment i.e. threat of being replaced by a new technology.




Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2016-09-16
DBS Vickers SGX Stock Analyst Report BUY Initiate BUY 0.67 Same 0.67



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