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
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https://research.itradecimb.com/
2018-05-15
SGX Stock
Analyst Report
0.077
Down
0.080
