CLPS Inc

CLPS Inc (NASDAQ: CLPS) is a Hong Kong headquartered Company that provides information technology consulting and solutions related to the insurance, banking, and financial service sector.

Investment Rationale – Avoid at USD 4.27

• From a technical standpoint, 20-day SMA (5.70) is not supporting an upside potential.
• Inability to attract new clients amid uncertain economic conditions can impact business growth.
• Wages are increasing in China, which can reduce profit margins.
• Over the past three years (H1 FY18 to H1 FY21), gross margin and net margin have remained lower than 33% and 5%, respectively, which is significantly below the industry median.

Risk Assessments

• The operational performance is exposed to foreign exchange rates and interest rates volatility.
• Credit and counterparty risk could also impact the business.
• The Covid-19 disruption can also harm the supply chain and customer demand.

Recent News

1 March 2021: CLPS undertook a securities purchase agreement to purchase common stock and warrants of nearly US$16.0 million.

Financial Highlights for the six months ended 31 December 2020 (as on 5 March 2021)

• During H1 FY21, revenue jumped 31% year-on-year US$58.3 million, while operating income soared 213.5%.
• The increase in revenue was driven by an increase in revenue from IT consulting services.
• Net income surged 114.9%, while basic and diluted EPS stood at US$0.30 in H1 FY21.
• Net cash from operating activities gained by 66.2%, from US$5.7 million to US$9.4 million.

One Year Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

CLPS delivered decent H1 FY21 results due to the positive effects of economies of scale. However, revenue from other services declined by 25.3%, primarily due to decreased demand. Moreover, selling and market expenses also increased by 27.7% year-on-year. Similarly, there is risk of exchange rate volatility and uncertainties pertinent to Ridik Pte. Ltd. acquisition. Also, adverse changes in the economic environment off lately could reduce client purchases and put pricing pressure. The Company also faces intense competition from offshore and onshore IT services entities, which can decline revenue and significantly harm business. CLPS also require additional capital to pursue growth opportunities, which can further create challenges. Stock 52 week High and Low were USD 19.78 and USD 1.62, respectively.

Based on uncertain economic conditions and subdued demand, we have given an “Avoid” recommendation on CLPS Inc at the closing market price of USD 4.27 (as on 5 March 2021), while we look forward to reviewing the upcoming catalysts and how it will integrate the acquired Companies.

Piedmont Lithium Limited

Piedmont Lithium Limited (NASDAQ: PLL) is an emerging lithium chemical Company, that supplies battery-grade lithium hydroxide to the growing electric vehicle and battery storage markets.

Investment Rationale – Avoid at USD 55.50

• From a technical standpoint, 20-day SMA (61.05) is not supporting an upside potential.
• The Company does not generate any revenue, while the EBITDA margin and net margin are in negative territory.
• PLL is still in an exploration stage and needs substantial external capital to run business.
• Demand for lithium and price volatility can also impact the cash flows.
• Profitability is dependent upon the development of economic deposit and explorations.

Risk Assessments

• In the absence of revenue, there is an investment risk and operating cost associated with exploration activities.
• Risk pertinent to stringent government policies regarding mining licenses and permits.
• Risk associated with American Depository Shares and not having certain shareholder rights.
• Risk pertinent to the reclamation costs and environmental liabilities.

Recent News

5 March 2021: PLL announced the Scheme Booklet pertinent to proposed re-domiciliation to United States from Australia, and it has been approved by the Supreme Court of Western Australia.

December 2020 Quarterly Report (as on 29 January 2021)

• PLL commenced a definitive feasibility study for North Carolina’s 160,000 t/y spodumene concentrate operation, which is led by Primero Group and Marshall Miller & Associates.
• It has expanded drill programs by using five drill rigs by an additional 25,000 meters.
• PLL also acquired a 19.9% interest in Sayona Mining Limited through shares and convertible notes.
• Completed a US public offering of 2,300,000 American Depository Shares at an issue price of US$25.00 per share.

One Year Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group) 

Conclusion

PLL has not generated any revenue yet, and thus, operating with losses. It is dependent upon external funding to pursue growth opportunities. Moreover, there is a risk to operations with Covid-19 pandemic and limited operating history in the lithium industry. The Company is still into the exploration stage and there are uncertainties regarding cash flow and profitability. Therefore, it is prudent to avoid any fresh investing at the current stage. Stock 52 week High and Low were USD 86.80 and USD 4.00, respectively.

Based on the gloomy outlook and uncertainty regarding profitability, we have given an “Avoid” recommendation on Piedmont Lithium Limited at the closing market price of USD 55.50 (as on 5 March 2021), while we look forward to reviewing the business once the Company starts generating revenue.

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