SINGAPORE (Sept 11): RHB Research has downgraded its call on security solutions provider IPX Securex Holdings to “neutral” from “buy”, while lowering its target price on the counter to 9 cents from 34 cents previously.

This comes after the group announced it had made an allowance of doubtful debt amounting to about $3 million, resulting from the sale of PepperBall and its related equipment to one of its regional customers who has since defaulted on its subsequent payment after making the initial payment of $0.7 million in Aug 2016.

“We think that the odds of the customer repaying in the near term is very low, and the write-off would provide the company with a better base to start afresh. However, any repayments in future ought to provide uplift for IPS’ financials, as it would be recorded as other income [under profit and loss (P&L)],” says analyst Jarick Seet in a Monday report.

Seet also highlights that certain project delays faced by the group, such for Airport of Thailand’s airport upgrades, coupled with increased manpower costs due to the hiring of a few new senior personnel, all the more support the research house’s move to downgrade its rating on the stock.

Additionally, the analyst believes the fulfilment of IPS’ the group’s letter of intent (LOI) for a US$54.8 million ($73.6 million) contract, which has also seen multiple delays in payment and subsequent orders after the initial orders received, is unlikely to be fulfilled.

The LOI was signed in April 2015, and entailed that IPS supply its services to a government body in Southeast Asia over a two-year period.

As such, upside from the LOI has been removed from RHB’s FY18 and FY19 estimates, resulting in the group’s NPAT projects being lowered substantially by 68% and 71% for FY18 and FY19, respectively.

“With the acquisition of security solutions provider Yatai Security & Communications Pte Ltd – as well as the hiring of a few senior personnel to help grow the business – we believe management is continuing to participate aggressively in the supply of scanning equipment for checkpoints and airports, especially in Singapore. Any contract wins would also help to build up IPS’ maintenance recurring revenue base over the longer term,” Seet concludes.

Shares in IPS Securex closed 1.2% or 0.1 cent higher at 8.3 cents.