Jadason Enterprises - RHB Invest 2018-05-18: Sector Slowdown Impacts Performance

Jadason - RHB Invest 2018-05-18: Sector Slowdown Impacts Performance JADASON ENTERPRISES LTD SGX: J03

Jadason Enterprises - Sector Slowdown Impacts Performance

  • We slash our FY18-19F PATMI by 40% and 35% respectively, to factor in the slowdown in the global semiconductor sector, lower-than-anticipated orders from Jadason’s major customers, as well as lower margins that stem from stiffer competition.
  • Jadason’s performance has also been impacted by a disruption in production activities in March, which was caused by a minor fire at a subsidiary’s facility that is principally engaged in the mass lamination of PCBs.
  • Maintain NEUTRAL, as we trim our DCF-backed Target Price to SGD0.05 from SGD0.08, reflecting nil upside.



Underperformance in 1Q18 was due to a sector slowdown.

  • Due to a slowdown in the global semiconductor sector, Jadason’s outlook has also been impacted negatively as it took in lower-than-expected orders from major customers. It also booked narrower margins from existing orders, as competition intensified. 
  • As a result, its 1Q18 topline slipped by 1% y-o-y, but its gross margin dropped to 15.5%, compared with 19.7% a year ago.
  • As a result, PATMI also plunged by 93% y-o-y. Jadason’s performance was also impacted by a disruption in production activities in March, which was caused by a minor fire at its subsidiary’s facility that is principally engaged in the mass lamination of printed circuit boards (PCBs).


Equipment and supplies business remains weak.

  • 1Q18 revenue of its equipment and supplies business declined 9% y-o-y. This was mainly due to weaker sales of supplies to PCB manufacturers. 
  • We expect this segment’s financial performance to remain weak in 2Q18.


Silver lining from 3Q18 onwards.

  • Management expects its manufacturing and support services business to continue see a healthy level of activity in FY18, after discussions held with long-term customers. 
  • There are also business opportunities from the development of 5th-generation mobile networks in China. However, we do expect these potential new projects to only come on-stream from 3Q18 onwards, if Jadason is successful in securing these orders.


Worker shortage is a drag.

  • Previously, we expected Jadason to solve its headcount issue by 1Q18, giving it the probability of being able to ramp up production back to a full utilisation rate. However, we understand that it has only managed to hire 50-100 workers, and the company is still short of 400 workers – which hampers efforts to boost revenue growth.


Maintain NEUTRAL, with a new DCF-backed Target Price of SGD0.05.

  • With the slowdown in the semiconductor sector, coupled by the lower-than-anticipated orders from its major customers, as well as lower margins stemming from stiffer competition and the prolonged shortage of workers, we cut FY18-19F NPAT by 40% and 35% respectively.
  • For now, we wait for the company to share further details on its headcount issue, and anticipate it to see a possible turnaround in 2H18.
  • A key risk to our call would be the shortage of workers continuing to dampen its outlook.





Jarick Seet RHB Invest | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-18
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.05 Down 0.080



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