SINGAPORE (Nov 16): DBS is maintaining its “fully valued” recommendation on Procurri Corporation with a target price of 18 cents and will be suspending coverage on the stock following its latest report.
The group is in the trying phase of managing its core organic business in IT distribution and lifecycle services, which saw the loss of a major customer in 2017.
In a Wednesday report, analyst Sachin Mittal says, “With cost issues related to EAF acquisition and Rockland JV, coupled with slower-than-expected organic business, Procurri may not be profitable in FY17F and any meaningful recovery is only possible in beyond FY18F.”
In the analyst’s view, the group needs to show consistent profit growth over the next two years to trade above book value and gain market confidence.
Procurri last week announced that it recorded a slight profit of $14,000 in 3Q17, compared to a loss of $178,000 in the same period last year and a loss of $1.67 million in the previous quarter.
Revenue was 60.9% higher at $50.3 million from $31.8 million a year ago, bringing gross profit to $16.1 million, 40.5% higher than $11.5 million last year.
However, overall gross margins were dragged down by IT Distribution segment which saw gross margins falling to a record low of 24% as Procurri gained traction with key customers.
The group’s management still expects 4Q17 to be profitable and for net margins to exceed 3% in FY18.
During the quarter, the group recorded an 83.9% increase in administrative expenses to $12.7 million from $6.90 million in the previous year.
According to the analyst, this is an area of concern as the high cost base may be the run rate going forward.
“While the company continues to selectively prospect for acquisition targets, which in our opinion would be in the IT Asset Disposition business, we believe the company still requires some time to improve its current execution with the EAF acquisition and Rockland JV before taking on a new acquisition,” says Mittal.
As at 10.25am, shares in Procurri are trading at 24 cents or 1.0 time FY17 book.
