Procurri Corporation Limited - DBS Research 2016-11-11: Road bumps along the growth journey

Procurri Corporation Limited - DBS Vickers 2016-11-11: Road bumps along the growth journey PROCURRI CORPORATION LIMITED BVQ.SI

Procurri Corporation Limited - Road bumps along the growth journey

  • 9M16 net profit (excluding one-offs) of S$5m was up 27% y-o-y but below our expectations of S$6.5m due to revenue miss.
  • FY16F/17F normalised earnings cut 24%/17%.
  • Maintain BUY with revised TP of S$0.56.



Procurri offers 23% earnings CAGR over FY15-18F. 

  • Procurri is among the few companies globally that offer both hardware resale and independent maintenance services, also reflected in its healthy gross margins of over 33%. 
  • Procurri offers a 23% earnings CAGR over 2015-18F aided by potential acquisitions to further strengthen its global footprint. 
  • Market research company, Frost & Sullivan projects hardware resale and independent maintenance services market to grow at 16.9% and 15.7% CAGR respectively over 2015-20.


9M16 earnings growth was slower than expected. 

  • 9M16 net profit (excluding one-offs) of S$5m was up 27% y-o-y but below our expectations of S$6.5m due to revenue miss. 
  • Post IPO, Procurri is bidding for bigger projects (S$5-10m each versus S$10-30k earlier) which is taking more paper work and processing time. In addition, Procurri is focusing more on maintenence services which command higher margins. 
  • We cut FY16F underlying profit to S$8.9m versus S$11.7m earlier.


We expect a significant acquisition by the end of FY16F or start of FY17F. 

  • We project a potential acquisition to contribute over S$3m in earnings in FY17F while Procurri could see its earnings grow organically to S$11m in FY17F as it secures larger IT projects. 
  • Enterprises are increasingly extending the life of their IT infrastructure by using pre-owned equipment & independent maintenance service to secure up to 60% cost savings.


Valuation

  • Maintain BUY on Procurri with a revised TP of S$0.56 pegged at 11.3x FY17F normalised earnings. 
  • Our PE multiple of 11.3x is based on a 5% premium to the average PE of comparable companies due to its superior growth prospects.


Key Risks to Our View

  • Further delay in potential acquisitions as we project these to contribute S$3m profit in FY17F.




Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2016-11-11
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.56 Down 0.670




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