We are initiating coverage on DeClout Limited (DeClout) with a S$0.39 target price and a BUY rating. DeClout is an established provider of cloud computing on‐demand and currently has clients from a spectrum of industries. We reckon a BUY rating for DeClout's strength in generating a growing stream of income with the expansion of its high margin IT infrastructure service division and its future growth potential substantiated by its unique positioning in developing niche VDC solutions. We believe there is strong upside for growth in the near term as there remains plenty of room for expansion of cloud adoption in the region.

Increasing service offerings with VDCs: Using the S$7.75m raised through the group'srecent placement, DeClout aimsto drive the full launch of its first VDC (i.e. Games Cloud), a vertically integrated platform for game developers, publishers and gamers and concurrently expand its IT infrastructure services division. The full‐launch of Games Cloud end 2013 will be a driver for revenue growth forthe games hosting segment.

In‐line financials for FY12, along with expansion plans: The company's recent results saw stable revenue growth of 39%, and we expect growth to maintain for FY13. Gross margins are maintained at approximately 30% for FY12. The company has announced its ASVIDA expansion plans to set up another 4 subsidiaries overseas through JVs or acquisitions. According to management, ASVIDA is expected to increase it's market share significantly from the expansion.


Valuation is attractive, TP of $0.39 
We value DeClout with an implied TP of $0.39 based on P/E multiples supported by DCF approach, factoring in expertise of the strong management team and ongoing expansion plans. We believe that DeClout will outperform as there will be a substantial up‐swing in sales and trading revenue and a significant uplift in games hosting revenue. BUY.


Source: AmFraser