SINGAPORE (July 3): UOB Kay Hian is starting coverage on anti-theft technology provider DISA, formerly known as Equation Summit, at “buy” with a target price of 1.3 cents.
The DCF-derived target price is assuming a base case of 15% penetration into the combined accessible market of Walmart, Target and Kroger by FY28.
Assuming 20% penetration, UOB’s bull case fair value is 1.8 cents, while its bare case fair value stands at 0.8 cent assuming 10% penetration within the same period.
See: DISA started at 'buy' by KGI with 2 cents target on Walmart win
The initiation of coverage comes as DISA begins to realise its potential and increase vendor adoption, inUOB’s view, with a potential tie-up with Target and Kroger along with a maturing understanding between Walmart vendors and DISA.
UOB forecasts revenue growth at a 148.9% compound annual growth rate (CAGR) from 2017 to 2021, at an average selling price (ASP) of 5 US cents/barcode.
“Retail theft and returns fraud is a perennial issue that continues to plague retailers. DISA with its home-grown anti-theft system answers this problem with its innovative solutions. With Walmart on board, DISA is keen on partnering Target and Kroger to enlarge its current client base. Despite slower-than-expected adoption, DISA is confident of deeper product penetration and targets to become profitable by FY21,” notes UOB’s research team in an initiation report for retail investors on Tuesday.
In particular, UOB highlights DISA as a direct proxy to a wave of technological upgrades among retailers to aid loss-prevention through shop thefts and frauds.
This is because it views DISA’s point-of-sale activation (PoSA) solution’s complex application programming interface (API) integration process as a significant barrier of entry for similar solutions, due to business confidentiality concerns.
“We posit that the establishment of a foothold among Walmart, Target and Kroger’s high-theft items eventually opens up a buffet of vendors free for the picking as rivals get locked out of individual retailers’ API systems,” elaborates the UOB research team.
“Securing three of America’s largest national retailers, DISA might be looking at a multi-year growth story entrenched in consumption growth in the US,” it adds.
As at 2:16am, shares in DISA are trading at 0.9 cent or 4.2 times FY19F book.
