SINGAPORE (May 15): DBS is maintaining its “hold” call on Procurri with a revised target price of 32 cents as the company has yet to demonstrate better execution.

Despite strong growth expected in the medium term, the delayed bottom-line contribution from acquisitions and cost escalations have lowered expectations of near-term profitability, says DBS.

“While the company continues to selectively prospect for acquisition targets, we believe the company still requires some time to improve its current execution with the EAF acquisition and Rockland JV,” says the Singapore research team in a Monday report.

1Q17 net profit of $0.16 million was lifted by tax credits of $0.14 million. Otherwise, net profit was below DBS’s expectations of $1–1.2 million. This was due to 67.9% higher administrative costs of $9.8 million on additional headcount and operating expenses of $2.4 million from EAF acquisition and Rockland JV. Staff costs, excluding EAF and Rockland, was $3.8 million, was 26.4% higher from a year ago.

IT distribution revenue and lifecycle services revenue of $20.5 million and $5.5 million respectively was 49.9% and 36.9% higher y-o-y mainly due to contribution from EAF acquisition and Rockland JV, as North and South America, Europe, Middle East and Africa regions saw better y-o-y performance.

Overall gross margins held up at 33%, similar to previous quarters, on the back of higher margins of 32.3% from IT Distribution. This was offset by lower margins from Lifecycle Services of 38.9% on lower margins in Rockland JV and Singapore.

Procurri incurred $16.9 million of additional capex due to maintenance parts equipment acquired for Rockland’s maintenance business. The remaining $1.7 million was attributed to a contract in Singapore for its “hardware as a service” business.

Shares of Procurri closed 2 cents lower at 28 cents.