Jadason Enterprises - RHB Invest 2018-03-01: Great FY17 But Could Be Better

Jadason Enterprises - RHB Invest 2018-03-01: Great FY17 But Could Be Better JADASON ENTERPRISES LTD J03.SI

Jadason Enterprises - Great FY17 But Could Be Better

  • Jadason Enterprises’ FY17 earnings are in line with our estimate, with NPAT surging 54% y-o-y to SDGD2.8m. If not for the lack of workers, coupled by the delay in the delivery of machine parts, it would have recorded much better numbers. 
  • Management is still trying to resolve the shortage of workers, as the company requires 400 more workers to meet its customers’ demand. As a result of the delay in solving the issue, we lower our FY18F earnings by 10%. 
  • Our DCF-based Target Price dips to SGD0.08 (from SGD0.10, 14x FY18F P/E). Downgrade to NEUTRAL (from Buy).

Underperformance in FY17 was due to forewarned issues. 

  • Previously, we mentioned that Jadason was facing issues in hiring workers to keep up with the ramp-up in demand. As of 2016, the company had about 600 workers in total. Despite more than a 14% increase in revenue, its workforce remained at 600 people. There is a high probability that the company would only be able to obtain additional employees only by end-2Q18.
  • Management has managed to hire 50-100 workers, but the retention rate is usually only 50%. Jadason is still short of 400 workers to meet its optimum number, which is a significant difference. This has negatively impacted FY17 earnings, which would have been much better if the shortage or workers labour issue is resolved.

Ramp-up in delay not due to insufficient orders. 

  • We understand from the management that the company has overflowing orders from other customers. Furthermore, the ramp-up in production to a full utilisation rate would have been possible – if not for the shortage of workers and parts.

Higher margins are likely. 

  • With its mobile customer’s new product, which was recently launched and is enjoying strong global demand, we expect orders to Jadason to continue growing. Also, machine parts that were delayed could likely be delivered – which would help to improve and speed up utilisation and production. As a result, we do expect it to chart a stronger FY18 ahead. 
  • We also anticipate margins to improve, as the company drops lower-margin customers in order to be able to accommodate projects with higher margins.

Worker shortage a drag; downgrade to NEUTRAL 

  • Previously, we expected Jadason to solve its headcount issue by 1Q18, giving it the probability of being able to ramp up back to full utilisation, and enjoy another year of strong growth. However, we understand that management has only managed to hire 50-100 workers, and the company is still short of 400 workers.


  • As a result, we expect the hiring of the workers to be completed likely by the end of 2Q18. We cut FY18F and FY19F NPAT by 10% and 12% respectively, resulting in a lower DCF-backed Target Price of SGD0.08. 
  • We downgrade our call to NEUTRAL (from Buy) as we wait for further details on the headcount issue. Solving it would improve Jadason’s outlook. 
  • A key risk to our call would be the shortage of workers continuing to dampen its outlook.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2018-03-01
RHB Invest SGX Stock Analyst Report NEUTRAL Downgrade BUY 0.08 Down 0.100