Jadason Enterprises Limited - CGS-CIMB 2018-05-15: Uncertainties Ahead

Jadason Enterprises Limited - CGS-CIMB 2018-05-15: Uncertainties Ahead JADASON ENTERPRISES LTD SGX: J03

Jadason Enterprises Limited - Uncertainties Ahead

  • Jadason’s 1Q18 net profit was below, at 0.6% of our FY18F estimate.
  • Balance sheet remains in a net cash position and bank borrowings were further reduced to S$2.6m at end-Mar 18 from S$3.2m at end-Dec 17.
  • We believe FY18 could be a challenging year given trade tensions between the US and China which affects Jadason’s end customers.
  • Given the poor 1Q18 performance, Jadason has a lot of catching up to do for the remaining nine months.
  • To be prudent, we now value Jadason at 1.0x CY18 P/BV (previously 12.34x CY19 P/E, 2 s.d. above average forward P/E during the FY04-07 earnings recovery cycle).

1Q18 net profit below expectations

  • Jadason Enterprises' 1Q18 revenue was below expectations at 18.5% of our FY18F estimate. 1Q18 net profit missed our expectations at 0.6% of our full-year forecast. The miss was due to the sharp decline in gross profit margin which fell to 15.5% in 1Q18 versus 19.7% in 1Q17. 
  • Jadason benefited from an exchange gain of S$0.5m in 1Q18. No dividend was declared for 1Q18.

Only positive on the manufacturing business segment

  • Jadason expects the distribution business to remain challenging as its PCB manufacturing customers continue to remain cautious in their capital expenditure programmes. Based on discussions with long-term customers, Jadason expects its Manufacturing and Support Services business to see a healthy level of activities in FY18 driven by opportunities in the 5th generation (5G) mobile networks in China. 
  • We caveat that trade tensions could affect customers involved in the 5G network rollout.

Maintain ADD with lower Target Price

  • We cut our FY18-19F core EPS forecasts by 46-57% as we lower our revenue assumptions. 
  • Given current macro uncertainties, we switch our valuation methodology to P/BV instead of P/E previously. Our Target Price (S$0.077) is now based on 1.0x CY18 P/BV (previously, 12.34x CY19 P/E multiple, i.e. 2 s.d. above average forward P/E during the FY04-07 earnings recovery cycle). 
  • Downside risk: total trade war between the US and China. 
  • Upside risks may come from the US’s willingness to resolve trade concerns with China.

William TNG CFA CGS-CIMB | https://research.itradecimb.com/ 2018-05-15
SGX Stock Analyst Report ADD Maintain ADD 0.077 Down 0.080