Jadason Enterprises - RHB Invest 2017-05-15: Expecting An Explosive Growth In 2H17

Jadason Enterprises - RHB Invest 2017-05-15: Expecting An Explosive Growth In 2H17 JADASON ENTERPRISES LTD J03.SI

Jadason Enterprises - Expecting An Explosive Growth In 2H17

  • Jadason has reported a turnaround in 1Q17 earnings with a core NPAT of SGD0.28m, as compared to 1Q16’s loss (without the one-off disposal of raw materials). 
  • Going forward, management has indicated that its generously profitable manufacturing and support services segment is likely to do well in 2H17, as its long term customers have indicated their intention to increase their production capacities. 
  • We expect this to bump its segment revenue by 30% and expect it to enjoy bumper profits in FY17F-18F. 
  • Maintain BUY with a DCF-based TP of SGD0.15 (67% upside).



Lucrative manufacturing and services margins. 

  • Previously required to source the material for its customers and as a result, it suffered forex risk as well as a change in material costs. It has since revamped its business model and now just provides drilling and lamination services for its customers. With that, its gross margins for this segment have become highly lucrative, about 40% and above. 
  • Overall, its margins have been improving over the years despite a drop in revenue, which are mainly from material costs.


Change in product mix & automation improves margins. 

  • As technology advances, the number of holes required in a printed circuit board (PCB) increases. As it is able to use the same machines to drill more holes with the same precision, the company’s margins would also increase with more holes in a PCB. 
  • Previously, it was doing PCBs with 10,000 holes and below. Currently, it has customers in the mobile and automotive segments that require 20,000- 100,000 and 5,000-20,000 holes in a PCB respectively.


New mobile project to be secured to fuel bumper growth. 

  • Through an existing customer, it is likely to secure a new project for the next three years that involves a leading smartphone player in the US, in its lucrative drilling and manufacturing division. This new model of this US smartphone – targeted to launch in 2H17F – would likely require at least 40,000 holes in a PCB. 
  • We think that this would cause its drilling segment revenue to rise by 20-30% pa over the next two to three years, resulting in its NPAT growing significantly for FY17F and FY18F.


Positives abound. 

  • As at 1Q17, Jadason had a strong balance sheet with a net cash position of SGD14.8m. 
  • Management shared that it is keen to reward shareholders and would likely give dividends this year if it performs well. Due to the low capex requirement, we expect it to continue generating a positive cash flow, and potentially distributing an attractive dividend yield of 9.6% for FY17F.
  • In addition, its share buyback mandate was approved at its AGM in Apr 2017.


Turnaround validated – maintain BUY with bumper profits ahead. 

  • Going forward, management has indicated that its generously profitable manufacturing and support services segment would likely do well in 2H17 as its long term customers have indicated their intention to increase their production capacities.
  • All in all, we expect this segment’s revenue to improve by 30% and enjoy bumper profits in FY17F-18F. 
  • Maintain BUY with a DCF-based TP of SGD0.15.




Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-15
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.150 Same 0.150



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