DeClout Ltd (DLL SP) - Maybank Kim Eng 2016-10-17: Value creating incubator

DeClout Ltd (DLL SP) - Maybank Kim Eng 2016-10-17: Value creating incubator DECLOUT LIMITED 5UZ.SI

DeClout Ltd (DLL SP) - Value creating incubator

Tech aggregator with value unlocking track record 

  • Listed on the SGX since 2012, DeClout is an incubator of IT infrastructure services and Vertical Domain Cloud (VDC) businesses. Key management have had track records of successfully growing and spinning off tech companies. 
  • In its relatively short listing history, DeClout’s biggest success in value unlocking has been the Jul 2016 listing of Procurri (PROC SP, CP SGD0.46, UNRATED), an IT hardware distribution business, which generated ROI of >200% or an unrealized gain of > SGD50m at IPO. This is a first in SGX history for an SGX Catalist Board firm spinning off of a subsidiary to the Main Board. 
  • Declout’s current portfolio of firms provides hardware distribution and maintenance (Procurri), ICT solutions (Acclivis & Beacon), e-commerce platform (Corous 360), and e-logistics platform (vCargo Cloud).

Another monetization in the pipeline 

  • As announced 12 Oct 2016, imminent is the divestment of an ICT subsidiary, Acclivis, to CITC Telecom (1883 HK, CP HKD2.74, UNRATED) that could raise net proceeds of up to SGD45m (SGD0.07/share) and a realised gain of SGD28m delivering 165% ROI. 
  • DeClout plans to distribute a portion of the divestment proceeds to shareholders and use the rest for debt reduction and further expansion. Also, it believes this could be a start towards developing a strategic relationship with CITIC Telecom.

Confident about Procurri’s growth prospects 

  • Procurri’s share price is currently trading below its IPO listing price.
  • However, DeClout management are bullish about its growth prospects and believe Procurri could potentially triple earnings in the next 2 years from a combination of organic growth, as well as inorganic opportunities arising in a highly fragmented market. The recent increase in DeClout’s stake in Procurri from 46.5% to 47.3% is a reflection of this optimism.

Implied value of other entities at discount to book 

  • The value of DeClout’s stakes in Procurri (SGD0.09/sh) and Acclivis (SGD0.07/sh) accounts for SGD0.16 (vs. share price of SGD0.20). Hence the market is valuing the remaining businesses at SGD0.04, a steep 33% discount to the net asset value (NAV), of SGD0.06 of these investments.
  • Hypothetically, if these assets were also to generate 200% ROI in value unlocking, that could translate to an additional SGD0.12/share.
  • Bloomberg consensus TP for DeClout & Procurri is SGD0.37 & SGD0.67.

Target Price: N/A

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-10-17
Maybank Kim Eng SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998