Jadason Enterprises - RHB Invest 2017-11-09: Uptrend Halted By Worker Issues

Jadason Enterprises - RHB Invest 2017-11-09: Uptrend Halted By Worker Issues JADASON ENTERPRISES LTD J03.SI

Jadason Enterprises - Uptrend Halted By Worker Issues

  • With the issue regarding lack of workers, as we mentioned previously in our September update, together with a delay in machine parts delivery, Jadason Enterprises' earnings for 3Q17 fell short of our FY17 estimates. 
  • However, we do expect a strong 4Q17 ahead, as we believe the parts for the machines would be delivered but, the situation with the lack of workers may only be resolved in Feb 2018. As a result, we lower our FY17F-18F NPAT by 10% and 12% respectively, which results in a lower DCF-derived TP of SGD0.10 (from SGD0.12, 13% upside). 
  • We maintain BUY, as we expect the shortage of workers issue to be resolved early next year.




3Q17 underperformed due to forewarned issues. 

  • Previously, we mentioned that Jadason was facing issues on hiring workforce to keep up with the growth. As of 2016, the company employed c.600 workers in total. Although revenues increased by more than 14% since then, the company’s workforce stagnated at c.600. 
  • There is a high probability that the company would only be able to hire additional workforce in Feb 2018, after the Lunar New Year. 
  • In addition, due to the boom in the semiconductor industry, the high precision parts the company ordered for upgrading the machines are in short supply and may be delayed for delivery to Nov 2017. This has caused a negative impact to the 3Q17 earnings, which fell short of our FY17 NPAT estimate.


Ramp up delayed but not due to insufficient orders. 

  • We understand from the management that the company has overflowing orders from customers and the ramp up to full utilisation would have been possible if not for the shortage of workers and parts.


A stronger 4Q17F ahead. 

  • With new customers secured in the mobile segment and with its newly launched mobile product which enjoys a strong global demand, we expect orders for Jadason to continue to increase. 
  • In addition, the machine parts that were delayed should likely be delivered which could help improve and speed up company’s utilisation and production. As a result, we expect a stronger 4Q17 ahead. 
  • We also expect margins to improve as the company dropped its lower margin customers in order to be able to accommodate those projects with higher margins.


Recovery and growth story still intact. 

  • Maintain BUY. We lower our FY17F-18F NPAT by 10% and 12% respectively, which results in a lower DCF-derived TP of SGD0.10 (from SGD0.12). However, with one of their new customers’ product, which was recently launched and enjoys a strong demand, we understand that overall orders are growing. 
  • We anticipate a better 4Q17 ahead due to the expected upcoming delivery of the machine parts. 
  • We also expect the company to solve the workforce issue by 1Q18F, which would provide the possibility of ramping up to full utilisation and enjoy another year of growth.


Key risks. 

  • Continuous shortage of workers.




Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-09
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.10 Down 0.120



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