Future Fintech Group Inc

Future Fintech Group Inc (NASDAQ-CM: FTFT) is engaged in the business of research, development and application of technology related to blockchain.

Investment Highlights - Future Fintech Group Inc – Avoid at USD 5.68

• Despite the improved performance in nine months period of FY2020, the Company is not able to provide meaningful guidance and forecast is extremely uncertain for global and Chinese economy.
• In the last week, the Company delivered a negative return of ~22.08% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales and EV/EBITDA multiples of the Future Fintech Group Inc are currently higher as compared to the corresponding multiples of the Software & IT Services industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 52 level), which means the stock price could decline in the short term.

Key Risks

• Increased competition could reduce the number of available investment opportunities.
• The Company is also exposed to various operational and financial risks with cybercrime, regulatory changes, and foreign exchange fluctuations.

Financial Highlights – Q3 & 9M FY2020 (30 September 2020) (released on 16 November 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter and nine months period of the financial year 2020, due to lower revenue from sales of goods and service fees, the total revenue declined significantly.
• The Company reported a significant increase in a net loss in the third quarter of FY2020, while for nine months period, the Company reported net income.
• The cash balance as on 30 September 2020 increased to $957,676 (31 December 2019: $531,067), reflecting an increase in net cash from financing activities.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in Q3 FY2020, while financial performance improved in 9M FY2020. FTFT witnessed a significant decline in revenue and profitability in the third quarter. The Company’s liquidity position improved, while reported a poor balance sheet. The Company’s operational performance was significantly impacted by the outbreak of the covid-19 pandemic due to travel restrictions, temporary closure of office buildings and quarantines. Future Fintech Group does not have access to any RCF (revolving credit facility) and has no assurance in securing commercial debt financing in the near future, which could have a negative impact on business is additional capital is required. The stock made a 52-week low and high of USD 0.65 and USD 11.29, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Future Fintech Group Inc at the closing price of USD 5.68 (as on 1 March 2021), with support from few catalysts needs to be evaluated at a later stage such as strong recovery in the Chinese economy from where all revenue is generated.

Socket Mobile Inc

Socket Mobile Inc (NASDAQ-CM: SCKT) is a Software and IT Services Company. The Company is a leading innovator of delivery solutions and data capture solutions to enhance productivity.

Investment Highlights – Socket Mobile Inc – Avoid at USD 11.46

• The Company has shown a significant decline in performance in the third quarter of the financial year 2020, with negative net income, due to covid-19 related restrictions.
• The Company has reported a negative ROE (Return on Equity) of 37.3% in Q3 FY2020, which is significantly lower than the industry median of 1%.
• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Cash Flow and Price/Book Value multiples of the Socket Mobile Inc are currently higher as compared to the corresponding multiples of the Electronic Equipment & Parts industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 57 level), which means the stock price could decline in the short term.

Key Risks

• Failure in cybersecurity and a critical data breach could hamper the operation as well as the reputation of the company.
• The Company’s operations are impacted by risks related to market trends, political change and change in the regulatory authority.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 16 November 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter and nine months period of the financial year 2020, due to lower revenue generated from Europe and Asia Pacific businesses, the revenue declined to $4,108,738 and $11,044,448, respectively.
• Due to lower revenue and higher operating expenses, the profitability declined significantly. The Company reported a net loss of $4,002,786 and $4,861,136 in Q3 and 9M FY2020, respectively.
• The cash balance increased to $1,774,845 as on 30 September 2020 (31 December 2019: $958,860).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the third quarter and nine months period of the financial year 2020. Both the top-line and the bottom-line performance declined. The liquidity position improved for the period, while the Company reported a poor balance sheet. SCKT operations are not materially impacted by foreign currency fluctuations, it incurred 10% adverse impact in exchange rates in the Q3 FY2020. The Company may be dependent on external funds to meet working capital needs and other development activities in near future. Socket Mobile’s majority of revenue is coming from few distributors, for nine months period the Company generated around 55% and 57% of worldwide revenue from Ingram Micro® and BlueStar, respectively. The stock made a 52-week low and high of USD 0.76 and USD 35.00, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Socket Mobile Inc at the closing price of USD 11.46 (as on 1 March 2021), and with support from few catalysts needs to be evaluated at a later stage such as actions taken to preserve the liquidity position.

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