DBS Research is cautioning investors against these stocks due to various problems that each of them is facing. Below are three stocks that investors should probably shy away from as they are unlikely to be a good investment.
1. Ezion Holdings
DBS Research has downgraded Ezion Holdings Limited (SGX: 5ME) from buy to fully valued with a target price of $0.13.
The latest financial report of Ezion for the second quarter was below expectations as the firm reported disappointing results of a low utilisation rate of 54% and declining charter rate.
Furthermore, Ezion has a weakening balance sheet with a sharp decline in cash balance from US$187 million in the first quarter to its current US$93 million in the second quarter.
With a high net gearing at 1.0x, Ezion is also facing tighter credit access, which is exacerbated by its inability to produce higher profits to help negotiate for refinancing.
Currently, Ezion is actively trying to explore financing options with its lenders and creditors. Shareholders have been notified of the group’s effort to try to renegotiate with its principal bankers and creditors, a process likely to be lengthy, taking up to several months.
DBS Research opines that Ezion’s debt restructuring efforts will go through and the company will be able to avert a debt crisis. However, the negotiations are likely to take months and uncertainties will remain until refinancing talks are finalised.
Hence, investors are advised to wait for negotiations to be completed such that they can be assured of the fundamental viability of Ezion.
2. Procurri Corporation
Procurri Corporation Limited’s (SGX: BVQ) core business results were disappointing as it struggled to make up for the loss of revenue from losing a major customer.
In the second quarter, Procurri reported a loss of $1.67 million mainly due to declining gross margins for IT Distribution and Lifecycle services, and also high administrative costs.
DBS Research estimates that Procurri “may be barely profitable in FY17 and any meaningful recovery is only possible in FY18”.
Persistently high administrative costs have always been an area of concern for Procurri.
In the second quarter, administrative expenses increased sharply by 88.1% year on year to $12.3 million mainly due to the acquisition of EAF and Rockland as staff headcount increases. Higher rental and maiden post-listing compliance costs also contributed to the higher administrative expenses.
Overall, DBS Research is disappointed with Procurri’s performance — its inability to demonstrate cost control and failure to raise earnings do not bode well for the company in the long run.
Its future profitability remains uncertain, and investors are cautioned against buying the stock, with current target price remaining at $0.18, lower than its current price of $0.20 (as at 17 Aug 2017, 11:56 am).
3. Noble Group
Investors may already be avoiding Noble Group Limited (SGX: CGP) like the plague as rating agencies S&P and Moody’s have both cut their credit ratings, as they warned of high default risk for the group.
DBS Research highlighted S&P’s warning that Noble is predicted to be unable to meet its debt obligations in the coming six months if the company does not make drastic changes to turnaround from its current financial status.
Noble has reported a loss of $1.75 billion for its second quarter and has said that it would be cutting jobs and selling assets to pay off its debts. With its current S&P credit rating at CCC-, default risks have risen from substantial to imminent.
In the case of a default, investors are warned that unsecured bondholders are unlikely to fully recover their principal and interest. Therefore, in light of all the alarm bells warning against investing in Noble now, investors are advised to stay away from this stock.
Above are the three stocks that investors should probably avoid investing in as the future seems rather bleak for them based on current status.
It is important to remember that even when prices are falling, the stock does not automatically become more attractive especially if its fundamental business model is shaky.