IPS Securex Holdings - RHB Invest 2016-10-18: Overhang Likely To Be Cleared By 1H17

IPS Securex Holdings - RHB Invest 2016-10-18: Overhang Likely To Be Cleared By 1H17 IPS SECUREX HOLDINGS LIMITED 42N.SI

IPS Securex Holdings - Overhang Likely To Be Cleared By 1H17

  • Further to the qualified opinion by its auditors regarding its trade receivables, IPS has issued an announcement clarifying that such receivables have been reduced significantly by 40% to c.SGD6.3m as at 14 Oct. They are also expected to decrease further in the coming months. Management said this is mainly due to the bulk of customers paying after its book closure date (30 Jun). 
  • With the huge contracts already secured, IPS should enjoy strong earnings growth for the next few years. 
  • Maintain BUY with TP of SGD0.40 (170% upside).


Trade receivables 40% lower. 

  • Further to the qualified opinion by its auditors regarding its trade receivables, IPS Securex (IPS) has issued an announcement clarifying that its trade receivables have been reduced significantly by SGD4.2m (40%) to c.SGD6.3m as at 14 Oct. Management said this was mainly due to the bulk of its customers paying after the company’s book closure date (30 Jun). 
  • Management also guided that its receivables would continue to decrease in the coming months.


Pre-payment plan in place. 

  • We understand that the customers for IPS’ receivables have signed agreements subsequent to the year end for instalments to be paid from Aug 2016 to Sep 2018. IPS received an initial payment of SGD700,000 in August.


Defaults unlikely due to customers’ background. 

  • Most of IPS' customers are government bodies or agencies. In addition, defence and homeland security remain vital parts of a government’s budget. As a result, we believe that there is a low possibility for its customers to default on those receivables. 
  • However, delays in payments, which are a key risk that we highlighted, remain a possibility and would likely affect the company’s financials.


A neighbouring country commenced the use of PepperBall. 

  • Just recently, the police force of a neighbouring country announced that it would be introducing PepperBall as a new form of non-lethal weaponry to counter riots or civil unrest. We believe that this would likely speed up the payment process and solve the overhang on this matter.


Overhang to be resolved soon, maintain BUY. 

  • We believe that the worse is over and IPS’ current share price has bottomed due an anticipated record FY17 earnings ahead. Airports of Thailand has already awarded its main contractors with contracts and the tender for the scanning systems are likely to re-open by end-2016. 
  • We are also of view that the overhang and delays in the PepperBall payments should be resolved in the next two months. 
  • We maintain BUY on IPS with a TP of SGD0.40, implying a 14x FY18F P/E.





Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-18
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.40 Same 0.400



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