Excerpts from UOB Kay Hian report

DISA (DISA SP): Scaling Up To Be The Next Big Thing
The recent summit held in Washington DC was largely positive, with DISA looking forward to proof-of-concept in the stores of another two top US retailers.

eddiechng10.17Eddie Chng, CEO of DISA. NextInsight file photo.With the adoption of DISA’s advanced anti-theft technology gaining momentum, management is confident of deeper product penetration and targets to be profitable by FY21.

Reiterate BUY and target price of S$0.013, based on DCF valuation.



WHAT’S NEW
Sales jumped 73.3% yoy due to Christmas ramp-up and rising adoption. Sales of PoSA and 3S codes leapt to 2,361,783 for FY18, representing a 73.3% yoy increase. Growth was particularly significant in 4QFY18 where 858,292 codes were sold, representing slightly more than half the number of anti-theft codes sold in 9MFY18.

DISA

Share price: 
0.9 c

Target: 
1.3 c

Management attributed the strong sales to a ramp-up in preparation for the Christmas retail season in US as well as strong adoption rates by suppliers.

Broad-based growth in adoption rates. In 4QFY18, the stock keeping units (SKU) under adoption from hoverboard and baby products suppliers grew more than 4 times from a quarter ago.

Sequentially, the number of SKU under the electronic goods category also grew 11%. The growing adoption was underpinned by the high susceptibility of these items to theft.

Growing footprint among top US retailers. The group adopts a strategy of focusing on top retailers’ adoption which will trickle down to adoption by their vendors and smaller retail players.

STOCK IMPACT
FY19 is shaping up to be a significant year. 
"DISA sold 816,115 codes in Jul-Aug18 and remains confident the Christmas run-up still has legs as retailers gear up for the end-of-year retail bump.


"With more major US retailers poised to adopt its innovative technologies and a potential enlargement of its addressable market, DISA is at an inflexion point. Post-POC, management is expecting to grow adoption to at least 200 SKU (73 as at Aug 18) and sell 20m codes in FY19."

-- UOB KH

On the back of this strategy, DISA is expecting two of the top US retailers to implement proof-of-concept (POC) of PoSA and 3S solutions across 130 US stores in the coming months. In addition, DISA is also working on potential tie-ups with other major retailers such as Meijer and Home Depot.

Potential inclusion of groceries. Management is anticipating the adoption of 3S codes on groceries in one of the two top US retailers undertaking the POC. While codes generated during the POC will not contribute to revenue, we view this development positively as the potential inclusion of groceries will enlarge the addressable market of DISA’s anti-theft technology.


EARNINGS REVISION/ RISK
No change to earnings estimates. We maintain our base-case assumptions as we await execution from POC and subsequent adoption by suppliers.

• Risks include: a) lower-than-expected adoption, b) execution risks in expanding retailer partnership to Kroger and Target, c) currency risks, and d) disintermediation risks due to absence of patents.

VALUATION/ RECOMMENDATION
Reiterate BUY and DCF-based target price of S$0.013. DISA is a disruptor in antitheft systems space with no direct listed peers. With low-tech solutions not working as well as intended, retailers are exploring high-tech solutions that can deliver tangible results.

DISA is a direct proxy to this wave of technological upgrades to aid loss prevention through shrinkage.

SHARE PRICE CATALYST
• More retailers adopting DISA’s technology.
• Higher-than-expected number of codes sold.
• Success in POC with regard to groceries, which will enlarge DISA products’ addressable market.


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