SINGAPORE (Feb 23): DBS Vickers Securities has downgraded its “buy” call on Procurri Corporation to “hold”, while lowering its target price to 40 cents from 56 cents previously.
This comes after the data centre equipment provider on Tuesday posted a 48% decline in 4Q16 net profit to $2.5 million, which was 35% below the research house’s expectations due to cost escalations and higher tax.
In a Thursday report, analyst Sachin Mittal says he expects corporate tax rates to remain high at about 25% in the future as a result of expiry of tax incentives in Singapore.
While he anticipates about $2 million of earnings contribution to come from Procurri’s recent joint venture with Congruity in FY17, the analyst adds that the group may see negligible FY17 profit from its subsidiary, EAF Supply Chain Holdings, as it achieves breakeven in 1Q17.
As such, DBS has revised its profit expectations for Procurri’s FY17 and FY18 earnings down by 23% and 13% respectively.
“With Procurri investing to expand operations in Asia as well as looking to gain market share in the US and European markets, we may see segmental margins taking a hit in the near term,” adds Mittal.
However, he does acknowledge that the group still has sufficient headroom for new acquisitions, and reckons profitable acquisitions could stand to have a significant positive impact on the group’s bottom line post-FY17.
As at 3.46pm, shares of Procurri are down by 1.23% at 40 cents.
