Excerpts from analysts' reports

UOB Kay Hian analyst: Edison Chen

Declout boasts an enviable track record of harvests. While incubating businesses 
involves levels of risk, Declout has performed two major harvests: a) Procurri, which was spun off and listed on the SGX mainboard, for 233% ROI and 79% IRR (over 3.25 years), and b) Acclivis, sold to CITIC, for 111% ROI and 71% IRR (over 4 years).

vesmond chairman4.14Vesmond Wong, executive chairman and CEO of DeClout. NextInsight file photo Since 
its IPO in 2012, Declout has ramped up its revenue from S$50m to S$300m and total assets from S$60m to S$320m with only S$140m raised (debt + equity).

Beaqon could be next harvest target. Beaqon is one of the leading players in Southeast Asia to provide end-to-end technology and telco solutions with a future proof model ready for the Internet of Things and Smart Nations, riding on the increased demand for data centres. With profitability and size similar to Acclivis (sold for S$75m), Beaqon could be the next major harvest target after Procurri and Acclivis.

Declout expects earnings to triple for first spin-off, Procurri, before 2019. While Procurri currently trades below IPO price, Declout remains bullish about its growth prospects, expecting triple earnings in the next two years through organic and inorganic growth. Just last year, Declout increased its stake of the data centre equipment IT distributor and lifecycle services provider from 46.5% to 47.3%.

edisonchen1.16♦ Declout has historically bought new businesses by issuing new shares. We agree that share compensation is preferable as it aligns interests. However, as Declout looks to three to four acquisitions this year, we opine that with its better balance sheet (S$14.9m net cash) and share price below its NAV of S$0.19/share, Declout is likely to buy back shares as opposed to issuing new shares.

-- Edison Chen (photo),
analyst, UOB Kay Hian 

Remaining businesses are e-commerce and e-logistics provider. Other than the above-mentioned IT Infrastructure businesses, Declout also has two primary businesses operating in the vertical domain cloud (VDC):
a) Corous360, an O2O platform provider 
handling games content and distribution which includes the 1m-user PLAYe platform, and
b) vCargo Cloud, an e-logistics platform which provides trade, supply chain and efreight. 
There is already interest in Corous360 as its Shenzhen subsidiary is being sold.

Remaining businesses implied to be available at only S$59.9m. Assuming that its 47.3% stake in Procurri is worth S$47.0m (based on current market cap), its remaining businesses are available at around S$59.9m. This mainly includes an IT infrastructure company with similar size and profitability to Acclivis and two VDCs incubations.

Full report here. 

Lim & Tan Research says .....

Based on the recently published Annual Report 2016, Beaqon alone yields a net profit after tax of S$3.2m for FY2016, registering a 23% CAGR while EBITDA and revenue nets S$5.9m and S$72.8m respectively.

With clientele ranging from government to MNCs such as GlaxoSmithKline and Star Cruises, the Group continues to leverage on its expertise in data centre and network infrastructure to move up the ICT value chain. With an eye on physical and cyber security, Beaqon would be well poised to capture growth opportunities.

Given the high barriers of entry of the IT infrastructure business segment led by Procurri and Beaqon, the Group will benefit from its generation of recurring income and positive operating cash flows.

Conversely, the VDCs are potential disruptors in their respective industries with Corous360 in the e-commerce platform, mobile, online and offl ine e-commerce platform solutions provider while vCargo Cloud is an e-logistics platform that provides e-trade services and cargo cloud solutions.

Following the Equal Access Offer exercise carried out as an innovative way to reward shareholders by buying back shares at S$0.315/share via an off-market scheme, the Group continues to reduce its public float pool with an inaugural share buy-back exercise carried out on 18/19 Apr 2017.

No. of shares bought
to date

Number

%

Market acquisition

10.00 m

1.62

Market acquisition on equal access scheme

22.99 m

3.72

Total

32.99 m

5.33

P/S: A total of 10 m shares have been acquired at an average price of 17.4 cents/share. The Chairman and CEO, Mr. Vesmond Wong, last purchased 9.0m shares at an average price of 20 cents/share on 17 October 2016. 

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