CFA Society Singapore
SINGAPORE (Nov 1): NRA Capital is maintaining its “overweight” call on Declout with a fair value of 34 cents after management outlined plans to grow its remaining businesses organically and inorganically to offset the revenue gap left by Acclivis within the next one or two years.
In a Monday report, analyst Liu Jinshu notes that the divestment to CITIC Telecom has been approved by shareholders, and reiterates that Declout is in a position of strength with “two harvests” in a year. Upon completion, Declout will end up with net cash of at least 2.8 cents per share, and up to 4.6 cents per share should Acclivis exceed target earnings for FY16.
“We expect gains from the sale of Acclivis to support DeClout’s profits in 2016 and 2017. In addition, Declout also plans to set up a joint venture to activate its $10 million National Research Foundation (NRF) grant to commence investing in a pipeline of identified start-ups,” says Liu.
Proceeds from the Acclivis sale will be utilised to reduce debts, reinvest in Beaqon and to reward loyal shareholders. However, the quantum and form of the reward will only be finalised after the money has been received, notes Liu, and can take the form of a dividend, share buyback, capital reduction, or a combination of all three.
Declout has also shone more light on its Vertical Domain Clouds (VDC) segment comprising of Corous 360 (C360) and vCargo Cloud (VCC). To put it simply, VDC attempts to control specific domain expertise and become the heartbeat of the entire platform. For example, C360 controls the entire value chain of games and merchandise business via its platform, while VCC’s e-trade platform attempts to control information flow from the origin to the destination forwarder.
“The aim is to turn C360 into an Asia Pacific Business, while VCC has the potential to be a global business,” says Liu.
Liu also quoted Declout’s chairman and CEO Vesmond Wong as saying, “we do things differently, but we don’t do different things.” While the company points out that it enjoys a high “equity kicker” for each VDC that works, it also has the ability to group different capabilities to build a larger and stronger business at the group level. Examples include Acclivis acquiring Internet Service Providers to complement its portfolio and C360 having 19 stores in Singapore supported by a common online and mobile platform.
“In turn we reckon that investments in riskier ventures will be made via small stakes held by the upcoming NRF joint venture,” says Liu.
Shares of Declout are trading 0.3 cent lower at 19.2 cents.