Jubilee Industries Holdings Ltd - CGS-CIMB Research 2018-05-31: FY18 Results Profit Turnaround

JUBILEE INDUSTRIES HLDGS LTD. SGX: 5OS

Jubilee Industries Holdings Ltd - FY18 Results Profit Turnaround

Successful turnaround from net loss in FY17 to net profit in FY18 amid recovery in the mechanical business.
Jubilee Industries' FY18 net profit was below at 56% of our FY18F estimates, primarily due to S$0.7m interest charges incurred for direct and convertible loan.
Excluding exceptional interest charges, core net profit deemed marginally below at 93% of our FY18F forecast.
Expect continued sales growth in both mechanical business and EBU business segments with margin expansion ahead.
Maintain ADD with SOP-derived Target Price of S$0.051.

Jubilee Industries' FY18 net profit was marred by S$0.7m exceptional interest charges incurred for the direct and convertible loan due to Accrelist Ltd; FY18 net profit formed 56% of our full-year forecast. Excluding the exceptional charge, FY18 core net profit is deemed in line at 93% of our full-year forecast.
Jubilee turned around from a net loss in FY17 to a net profit in FY18 on the back of 47% y-o-y revenue growth.

The mechanical business unit generated S$1.4m in FY18 gross profit, compared to a FY17 gross loss of S$1.6m, affirming a successful turnaround post cost-restructuring exercise.
Looking ahead, we expect increasing profit contribution as management guided for increasing orders and said the company will need to increase capacity to take in the excess demand from customers. Customers include home appliances makers such as Philips and Dyson, as well as HP, Flex and Venture.

The electronics business unit (EBU) clocked in a higher revenue of S$152m in FY18 vs. S$100m in FY17, mainly driven by higher sales of memory chips that are mostly supplied by SK Hynix.
Management guided for stronger sales contribution from its Neophotonics and Samsung electronic components ahead, supported by demand from telco network and data centre upgrading and from high-tech electronics industries respectively.

Jubilee registered gross margin of 5% in FY18, mainly on positive contribution from the mechanical business.
We think gross margin could improve towards c.8% in our forecast period, underpinned by further expansion in the mechanical business and increasing sales of the higher-value Neophotonics and high capacitance products.
We expect the proposed acquisition of HonFoong Plastics would facilitate further expansion in the mechanical business, contributing to Jubilee’s bottomline.

We adjust our FY19-20F earnings to reflect its latest FY18 results and introduce our FY21F forecasts. We maintain our ADD call on the stock in view of strong earnings growth outlook, with an SOP-derived Target Price of S$0.051.
Key re-rating catalyst: better-than-expected earnings growth.
Downside risk: distributorship with key principal suppliers.

Colin TAN CGS-CIMB Research | https://research.itradecimb.com/ 2018-05-31

SGX Stock Analyst Report ADD Maintain ADD 0.051 Same 0.051