SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

10 in 10 with Procurri Corporation - Empowering sustainable IT consumption

<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX</strong>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
<div></div>
<div>
<div>
<div>
<div>
<div>
<p>INITIATION</p>
<div>
<div>
<div>
<div>
<h2>Procurri Corporation Limited</h2>
<div>
<div>
<div>
<h3>21st century “karang guni”</h3>
<div>
<div>
<div>
<ul>
<li>We initiate on Procurri with a NEUTRAL and a target price of S$0.38. We use FY2022F EV/EBITDA as the valuation base, with a 7x peg.</li>
<li>Secondhand serenade. The rising focus on environmental, social and governance (ESG) factors coupled with the pragmatic corporate concerns that COVID-19 caused may be the booster that the third-party maintenance (TPM) sector needs to take market share from original equipment manufacturers’ (OEM) maintenance teams.</li>
<li>A private equity playground. The TPM sector observes strong activity levels amidst private equity players, and has been consolidating in the past 5 years at attractive valuations. Procurri has private equity backing as well and has also been the subject of an attempted acquisition by a major competitor.</li>
<li>Initiate with NEUTRAL. While recent events imply valuation upside for the company, there are minimal catalysts to drive price action apart from another privatisation attempt in the near term.</li>
</ul>
<div>
<div>
<div>
<h3>Investment Thesis:</h3>
<p><strong>Two factors for a secondhand serenade</strong>. It is no industry secret that TPM delivers significant cost savings over legacy OEM maintenance. However, as consideration for ESG factors becomes an increasingly important part of corporate culture, the rationale for companies to opt for post-warranty independent maintenance and resale equipment becomes more compelling. COVID-19 could be the kicker that IT departments need to go beyond entrenched practices and embrace “new” cost cutting measures such as TPM.</p>
<p><strong>Private equity playground.</strong> The TPM sector has been consolidating, and is held by various private equity players whom are active in the space, either through strategic involvement or providing additional financial backing. Precedent transactions in the space have occurred at over 10x EV/EBITDA. These private valuations have attracted private equity involvement for Procurri with Novo Tellus taking a stake in 2019. Subsequent events continue to imply that Procurri’s private value could be worth more than what the public market currently values it for.</p>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>

Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.






INITIATION




Procurri Corporation Limited



21st century “karang guni”




We initiate on Procurri with a NEUTRAL and a target price of S$0.38. We use FY2022F EV/EBITDA as the valuation base, with a 7x peg.
Secondhand serenade. The rising focus on environmental, social and governance (ESG) factors coupled with the pragmatic corporate concerns that COVID-19 caused may be the booster that the third-party maintenance (TPM) sector needs to take market share from original equipment manufacturers’ (OEM) maintenance teams.
A private equity playground. The TPM sector observes strong activity levels amidst private equity players, and has been consolidating in the past 5 years at attractive valuations. Procurri has private equity backing as well and has also been the subject of an attempted acquisition by a major competitor.
Initiate with NEUTRAL. While recent events imply valuation upside for the company, there are minimal catalysts to drive price action apart from another privatisation attempt in the near term.




Investment Thesis:
Two factors for a secondhand serenade. It is no industry secret that TPM delivers significant cost savings over legacy OEM maintenance. However, as consideration for ESG factors becomes an increasingly important part of corporate culture, the rationale for companies to opt for post-warranty independent maintenance and resale equipment becomes more compelling. COVID-19 could be the kicker that IT departments need to go beyond entrenched practices and embrace “new” cost cutting measures such as TPM.
Private equity playground. The TPM sector has been consolidating, and is held by various private equity players whom are active in the space, either through strategic involvement or providing additional financial backing. Precedent transactions in the space have occurred at over 10x EV/EBITDA. These private valuations have attracted private equity involvement for Procurri with Novo Tellus taking a stake in 2019. Subsequent events continue to imply that Procurri’s private value could be worth more than what the public market currently values it for.



















(Non-SGX Report) Procurri Corporation Limited: 21st Century “karang Guni”

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven


For the month of May, 11 new deals were discussed on Smartkarma with an overall announced deal size of ~US$7.3bn.



Clicking on the company name in the table below will take you to the entity page where you can read the initial insight(s) written by Smartkarma contributors on these new deals and follow-up discussions, or simply click on the insight link(s) below the name.







New Deals


Industry


Size (US$bn)


Type


Premium




Australia




APN Property Group (APD AU) 
Property
0.2
Scheme
50%


APN Prop (APD AU): Dexus' Done Deal



Boral Ltd (BLD AU) 
Construction
4.8
Off-market
Nil


Boral Ltd (BLD AU): Seven's Nil Premium



Japara Healthcare (JHC AU) 
Healthcare
0.2
Scheme
30%


Japara Healthcare (JHC AU): Here Comes The Calvary


 



Hong Kong




Chong Hing Bank (1111 HK) 
Banking
0.2
Scheme
51.2%



Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop
Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light



 



Japan




Aomori Bank (8342 JP) / Michinoku Bank (8350 JP) 
Bank
0.6
Merger



Aomori Bank &amp; Michinoku Bank Merger - Nothing To Write Home About Yet



EPS Holdings (4282 JP) 
Data/software
0.1
Tender Offer
35.5%


Another Too-Cheap MBO as Founder Takes Out EPS


 Locoguide (4497 JP) / Kufu (4399 JP)

Real estate
0.4
Merger



Locoguide (4497 JP) - Kufu (4399 JP): Merger Is a Done Deal



Maruka Machinery (7594 JP) / Furusato Industries (8087 JP) 
Trading
0.4
Merger



A Complex SmallCap Merger in Japan: Maruka (7594) And Furusato (8087)



Secom Joshinetsu (4342 JP) 
Security
0.3
Tender Offer
66.2%


Secom To Finally Buy Out Affiliate Secom Joshinetsu (4342)








Malaysia




Can-One Bhd (CAN MK) 
Manufacturing
0.1
MTO
15.8%


Can-One (CAN MK)? Yeoh Can Lah!



IHH Healthcare (IHH MK) 
Healthcare
N/A
N/A
N/A


IHH Healthcare (IHH MK): More Medicine For Mitsui?


Source: Smartkarma Insights






The above does not include BetMakers Technology Group (BET AU) lobbing a non-binding offer of A$4bn (A$1bn cash, $3bn scrip into BET) for Tabcorp Ltd (TAH AU)'s wagering and media division, and Apollo's prior tilt - Tabcorp (TAH AU): Apollo Shows Its Hand.

Nor does the table include the rumoured merger between  Angang Steel Co Ltd (H) (347 HK) and Bengang Steel (000761 CH) - Amalgamated Steel: Merging Angang &amp; Bengang As, Bs, and Hs.



The average premium for the new deals announced (or first discussed) in May was ~41%, with a year-to-date average of ~31% (78 deals). This compares to the average premium for all deals in 2020 (158 deals) and 2019 (145 deals) of 31% and 31.5% respectively. 




Summary of News in May of Arb Situations On Smartkarma's Radar



(Again, click on the company names to take to you to the insights and/or discussion posts for a more comprehensive read-through on each situation)






Australia


Comments (with links to announcements &amp; insights)




3P Learning (3PL AU) 

No May update




Bingo Industries (BIN AU) 

1-May: Capital Group announced it has sold its entire 9.7% stake in Bingo Industries (BIN AU).




Crown Resorts (CWN AU) 

10-May: Crown Resorts: Blackstone &amp; Star Place Their Bets
17-May: Crown Says Blackstone's Bid Is Light. Undecided On Star
20-May: Crown Resorts Ltd: Blackstone Offer Rejected, Star Offer May Still Not Reflect True Forward Value




Galaxy Resources (GXY AU) 

No May update




Link Administration Holdings (LNK AU) 

27-May: Link Group (LNK AU): KKR Opens The Bidding For PEXA
31-May: Link Admin (LNK AU) Goes IPO Route For PEXA Afterall




Mainstream Group Holdings Ltd (MAI AU) 

2-May: Mainstream (MAI AU): More-Than-Double in Less than 2 Months After Apex Bump
6-May: Mainstream (MAI AU): Bidding War Continues as SS&amp;C Overbids for the 4th Time
14-May: Mainstream (MAI AU): +120% in ~2 Months but Bidding War Continues....




McPherson's Ltd (MCP AU) 

No May update




Mortgage Choice (MOC AU) 

26-Mau FIRB gives its approval



Primewest Group Ltd (PWG AU)

14-May: Target's Statement and Bidder's Statements were published. Primewest Group Ltd (PWG AU)'s Board has unanimously recommended shareholders to accept the Offer. 




Think Childcare (TNK AU) 

12-May: Think Childcare (TNK AU) has agreed to extend the Exclusivity Period with Busy Bees to 31st May 2021 (vs. original deadline of 14th May). This is still a non-binding deal with an expected completion date to be in 1Q CY22. 




Vitalharvest Freehold Trust (VTH AU) 

1-May: And so it goes - MAFM bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to $1.26.
7-May: MAFM exercises a call option and acquires 16.2% of Vitalharvest Freehold Trust (VTH AU).
28-May Roc bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to $1.29/share.  And says it will overbid any MAFM counter! 




Vocus Communications (VOC AU) 

10-May: Vocus Comms (VOC AU): MIRA/Aware's Done Deal
19-May: Vocus Comms (VOC AU): MIRA/​Aware’s Scheme Doc Despatched. EGM On 22 June










Hong Kong


Comments (with links to announcements &amp; insights)




Beijing Digital Telecom (6188 HK) 

1-May: Beijing Digital (6188 HK): Offer Now Open. IFA Says Fair
20-May: Beijing Digital Telecom (6188 HK)'s MGO is now unconditional in all respects. 




China Machinery Engineering (1829 HK) 

28-May: China Machinery Engineering (1829 HK): Movement In The Works?




China Traditional Chinese Medicine (570 HK) 

7-May: In its monthly update regarding a potential Offer, China Traditional Chinese Medicine (570 HK) says there is no update.




China Youzan Limited (8083 HK) 

10-May: China Youzan (8083 HK): Reality Check As Shares Rollover




Kerry Logistics Network (636 HK) 

4-May: Kerry Logistics Network (636 HK) will hold an EGM on the 26 May for shareholders to vote on the sale of the Hong Kong and Taiwan warehouse businesses to Kerry Holdings. 
26-May: At its SGM, Kerry Logistics Network (636 HK) shareholders overwhelmingly approved the sale of its Hong Kong, Taiwan warehouse business to Kerry Holdings.




New Century REIT (1275 HK) 

No May update




Rivera Holdings (281 HK) 

No April update




Sichuan Languang Justbon Service Group (2606 HK) 

3-May: Languang Justbon (2606 HK): Offer Now Open - For Up To Four Months










India


Comments (with links to insights)




Mphasis Ltd (MPHL IN) 

4-May: The Detailed Public Statement on Mphasis Ltd (MPHL IN) has been released. The Open Offer is scheduled tentatively to run from 18 June to 1 July, which means it is running Very Tight and the option is worth a bit less than I expected. But that just means there is more gamma. One could get big at the high Rs 1600s area. 




Vedanta Ltd (VEDL IN) 

4-May: Vedanta Now Caught Up With Peers - A Different Skew Ahead










Japan


Comments (with links to announcements &amp; insights)




BeNEXT Group (2154 JP) 
No May update



Cocokara Fine (3098 JP) 
No May update



Fuji Kosan Company (5009 JP) 
17-May:  Fuji Kosan Company (5009 JP) has responded to Aslead Strategic Value Fund's Tender Offer with its initial Target Opinion Statement which is "Opinion Withheld." This is because Fuji Kosan hasn't actually done anything yet - two weeks in. They have sent questions to Aslead, and Aslead has five business days to respond. This is slow-walking it. This tender offer is likely to be extended because of that.



Hitachi Metals (5486 JP) 

5-May: Hitachi Metals - Should I Stay or Should I Go Now?




Honshu Chemical Industry (4115 JP) 

13-May: Honshu Chemical (4115) Shareholders Perhaps One Day From a Wrong Price Takeover
16-May:: Honshu Chemical Shareholders Get the Short End of the Stick As The Board Is Ex-Gourd




Invesco Office J Reit (3298 JP) 

6-May:  Invesco Office OPPOSES Starwood Hostile Offer and Gets a Distinctly Beige Knight
11-May:  Starwood Bumps Terms, Lowers Threshold on Invesco Office
13-May:  Invesco Office's Terrible, Horrible, No Good Very Bad Day... Changes Things
20-May:  Invesco Office's Beige Knight (Deemed Dirty Gray By Markets) Suddenly Looks Brighter and Whiter
23-May:  Starwood Responds to Invesco Office's White Knight Proposal
24-May: Starwood has extended their Tender Offer on Invesco Office J Reit (3298 JP) from the 24th of May to 15th of June after the close of the 24th. They did not raise the price. This is basically the equivalent of Starwood calling Invesco's bluff. They can extend again if they want but they are going to make Invesco come out. They can change price later if they think it necessary.



Japan Asia (3751 JP)
No May update



Sawada Holdings (8699 JP) 

9-May:  Sawada Selldown Was NOT Done - Shareholder Structure Looks Different Now
23-May: Sawada Is A Different Stock Now
31-May:  Be Careful of Expectations on Sawada (8699)




Toshiba Corp (6502 JP) 

14-May: Toshiba – Shareholder Returns Trump Weak Guidance
17-May: Toshiba Results &amp; Shareholder Return - Possibly Big Impact Buyback Coming











New Zealand


Comments 




Tilt Renewables Ltd (TLT NZ) 

No May update











Singapore


Comments (with links to announcements)




Procurri Corporation (PROC SP) 

3-May: The Partial Offer has not become unconditional in all respects on the Closing Date and has therefore lapsed










Thailand


Comments




Intouch Holdings (INTUCH TB) 

No May update




Vinythai Public Co (VNT TB) 

No May update






Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

<p>Singapore-based independent IT hardware reseller <a href="https://www.smartkarma.com/entities/procurri-corp-ltd" target="_blank" data-smartkarma-citation="entities:24110:1" rel="noopener">Procurri Corporation (PROC SP)</a> announced they received a <a href="https://links.sgx.com/FileOpen/Offer%20Announcement.ashx?App=Announcement&amp;FileID=651979" target="_blank" rel="noopener">Voluntary Conditional Cash Partial Tender Offer</a> from an investment vehicle controlled by Singapore-based private equity fund Novo Tellus. </p>
<p>The Offer Price for the Partial Offer is S$0.365 per share in cash and the Offeror intends to acquire 27.91% of the total number of shares. If the Offer is successful, the Offeror will hold in aggregate 51.0% of the company. </p>
<p>Following the announcement of the Deal, PROC shares closed at S$0.34. </p>
<hr>
<div class="content-remarks">
<p style="text-align: left;"><em>For more information about M&amp;A rules, regulations, and practices in Singapore, please refer to <a href="https://www.smartkarma.com/insights/quiddity-singapore-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:28849" rel="noopener">Quiddity Singapore M&amp;A Guide 2019</a></em></p>
</div>

Singapore-based independent IT hardware reseller Procurri Corporation (PROC SP) announced they received a Voluntary Conditional Cash Partial Tender Offer from an investment vehicle controlled by Singapore-based private equity fund Novo Tellus. 
The Offer Price for the Partial Offer is S$0.365 per share in cash and the Offeror intends to acquire 27.91% of the total number of shares. If the Offer is successful, the Offeror will hold in aggregate 51.0% of the company. 
Following the announcement of the Deal, PROC shares closed at S$0.34. 


For more information about M&amp;A rules, regulations, and practices in Singapore, please refer to Quiddity Singapore M&amp;A Guide 2019


Procurri Corporation (PROC SP): Partial Tender Offers Scant Opportunity

<div>
<div>
<div>
<div>
<div><em><strong>These equity research reports are not written by the SGX</strong>. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
<p></p>
<p>RESULTS UPDATE</p>
<div>
<div>
<div>
<div>
<h2>Procurri Corporation</h2>
<div>
<div>
<div>
<p><strong>Life buoys deployed, afloat but adrift</strong></p>
<div>
<div>
<div>
<ul>
<li>Procurri reported 1H20 results – 1H20 sales are +1.6% YoY and 1H20 PATMI is +1.4% YoY, propped up by ~S$5mn of government grants.</li>
<li>Procurri provided context behind each business segment’s prospects, and expects a decent outlook for IT Distribution and IT Asset Deposition.</li>
<li>We see Lifecycle Services as key: Weakness in this business has evident impact on gross margins, and we think the recovery of this business is critical for Procurri to do well in the second half.</li>
</ul>
</div>
<div>
<div>
<div>
<p>Procurri is a leading global independent provider of IT lifecycle services and data centre equipment. With coverage in over 100 countries, Procurri aids customers with the purchase, disposal and management of used enterprise hardware, such as servers.</p>
<p>Procurri reported 1H20 results with comparable sales (S$110.5mn, +1.6% YoY) and equally comparable PATMI (S$2.65mn, +1.4% YoY) to 1H19. However, 1H20 profit was largely supported by a S$5mn increase in Other Income from various government grants, in which Procurri would have made a loss without.</p>
<p>Procurri was not spared from COVID-19, as disruptions and lockdowns led to customers delaying purchasing decisions. Segment-wise, IT Asset Disposition (ITAD) saw little impact, while IT Distribution had strong sales in March as companies hoarded equipment in the early stages of the pandemic. The Lifecycle Service division had sales fall by 4.7% YoY due to the difficulty in conducting face-to-face meetings amidst the current COVID-19 environment.</p>
<div>
<div>
<div>
<p>Gross margins fell 6.3ppt YoY to 29.8% as Procurri made an accounting change to stock obsolescence. This, combined with inventory write-down of aging equipment and lower sales contribution from Lifecycle Services, the highest gross margin segment, meant that Procurri fell into a loss, if government grants were excluded. The company made the decision to hold on to staff, as Selling &amp; Administrative expenses continue to account for &gt;30% of sales.</p>
<p>Given historic trends of Selling &amp; Administrative expenses being &gt;30% of sales, we think Procurri cannot afford prolonged weakness in its Lifecycle Service business, as gross margins below 30% will likely lead to a loss. A similar case occurred in 2017 where 32% gross margins, 32% Selling &amp; Administrative expenses and a few million of write-down led to a S$2.7mn loss for the year.</p>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>





These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.

RESULTS UPDATE




Procurri Corporation



Life buoys deployed, afloat but adrift




Procurri reported 1H20 results – 1H20 sales are +1.6% YoY and 1H20 PATMI is +1.4% YoY, propped up by ~S$5mn of government grants.
Procurri provided context behind each business segment’s prospects, and expects a decent outlook for IT Distribution and IT Asset Deposition.
We see Lifecycle Services as key: Weakness in this business has evident impact on gross margins, and we think the recovery of this business is critical for Procurri to do well in the second half.





Procurri is a leading global independent provider of IT lifecycle services and data centre equipment. With coverage in over 100 countries, Procurri aids customers with the purchase, disposal and management of used enterprise hardware, such as servers.
Procurri reported 1H20 results with comparable sales (S$110.5mn, +1.6% YoY) and equally comparable PATMI (S$2.65mn, +1.4% YoY) to 1H19. However, 1H20 profit was largely supported by a S$5mn increase in Other Income from various government grants, in which Procurri would have made a loss without.
Procurri was not spared from COVID-19, as disruptions and lockdowns led to customers delaying purchasing decisions. Segment-wise, IT Asset Disposition (ITAD) saw little impact, while IT Distribution had strong sales in March as companies hoarded equipment in the early stages of the pandemic. The Lifecycle Service division had sales fall by 4.7% YoY due to the difficulty in conducting face-to-face meetings amidst the current COVID-19 environment.



Gross margins fell 6.3ppt YoY to 29.8% as Procurri made an accounting change to stock obsolescence. This, combined with inventory write-down of aging equipment and lower sales contribution from Lifecycle Services, the highest gross margin segment, meant that Procurri fell into a loss, if government grants were excluded. The company made the decision to hold on to staff, as Selling &amp; Administrative expenses continue to account for &gt;30% of sales.
Given historic trends of Selling &amp; Administrative expenses being &gt;30% of sales, we think Procurri cannot afford prolonged weakness in its Lifecycle Service business, as gross margins below 30% will likely lead to a loss. A similar case occurred in 2017 where 32% gross margins, 32% Selling &amp; Administrative expenses and a few million of write-down led to a S$2.7mn loss for the year.




















Non-SGX Report: Procurri Corporation: Life Buoys Deployed, Afloat but Adrift

Singapore

Procurri is a global independent provider of IT lifecycle services and data center equipment. The company offers hardware resale, independent maintenance services, and IT asset disposition (ITAD), including data destruction and e-waste recycling. Procurri's global headquarters are located in Singapore, and it was incorporated in 2013.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Procurri (PRCRF US)

10 in 10 with Procurri Corporation - Empowering sustainable IT consumption

10 in 10 with Procurri Corporation - Empowering sustainable IT consumption

Singapore Exchange Ltd (SGX)

(Non-SGX Report) Procurri Corporation Limited: 21st Century “karang Guni”

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

Singapore Exchange Ltd (SGX)

(Mostly) Asia M&A: May 2021 Roundup

The average premium for the new deals announced (or first discussed) in May was ~41%, with a year-to-date average of ~31% (78 deals).

David Blennerhassett

Procurri Corporation (PROC SP): Partial Tender Offers Scant Opportunity

The Procurri Partial Tender announced today would get the buyer to 51% for what is a small premium. One might say bearish because execs are...

Janaghan Jeyakumar, CFA

Non-SGX Report: Procurri Corporation: Life Buoys Deployed, Afloat but Adrift

These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors....

Singapore Exchange Ltd (SGX)

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)