Jadason Enterprises - RHB Invest 2017-06-27: On-Track Expansion Paves The Way For A Strong 2H17

Jadason Enterprises - RHB Invest 2017-06-27: On-Track Expansion Paves The Way For A Strong 2H17 JADASON ENTERPRISES LTD J03.SI

Jadason Enterprises - On-Track Expansion Paves The Way For A Strong 2H17

  • With Jadason’s turnaround in 1Q17, we look forward to a stronger 2Q17 and a period of explosive growth in 2H17. 
  • As of 2Q17, utilisation is already at 60+% (same as 4Q16) vs 40+% in 1Q17. We understand that plans to ramp up for its new mobile product from the US are on track, and the new project would commence in Jul 2017, with full utilisation expected by end-3Q17. 
  • With projected bumper profits ahead, coupled with positive key macro data on the electronics sector, we maintain our BUY call, with an unchanged DCF-derived TP of SGD0.15 (67% upside).

Expansion plans for new product on track. 

Jadason is in the midst of upgrading its machines to facilitate the production ramp-up in 2H17. 

  • With more holes (average of 80,000) needed to be drilled for the printed circuit board (PCB) of this new product, vs its current portfolio of products, we expect margins for this new project to be more lucrative. 
  • We expect its drilling segment’s revenue to rise by 20-30% pa over the next 2-3 years, resulting in NPAT growing significantly in FY17F-18F.

Turned around in 1Q17 with stronger 2Q17 ahead. 

  • As of 2Q17, utilisation is already at 60+% – the same as 4Q16, its strongest quarter last year – compared to 40+% in 1Q17. In 2Q16, it registered a loss of SGD1.2m. 
  • We expect Jadason to record not only a turnaround but an even stronger quarter in 2Q17 vs 1Q17, based on the utilisation rate of its machines.

Vote of confidence – share buybacks. 

  • Jadason's CEO Mr Fung Chi Wai last bought back shares in May this year, which we view as a vote of confidence on its outlook. Before the share buyback, Mr Fung bought back shares twice in Jan 2017. One of its substantial shareholders has also been increasing his stake since 2016. We believe these are likely positive signals of its solid fundamentals. 
  • Management highlighted that it is keen to reward shareholders and would likely give dividends this year, if it performs well. Due to low capex requirements, we expect it to continue generating positive cash flow, and potentially distribute an attractive dividend yield of 8.8% in FY17F. 
  • Jadason’s 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 profitable manufacturing and support services segment would likely enjoy strong growth in 2H17 due to the new mobile project. 
  • All in, we expect this segment’s revenue to improve by 30% and enjoy bumper profits in FY17F-18F. 
  • With a positive outlook ahead, we maintain our BUY rating with an unchanged DCF-derived TP of SGD0.15. 
  • Downside risks to our call are an economic slowdown and lower-than-expected sales of its customers’ products.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-06-27
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.150 Same 0.150