Jadason Enterprises Limited - CGS-CIMB Research 2018-08-16: Challenging 2H

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JADASON ENTERPRISES LTD SGX:J03

Jadason Enterprises Limited - Challenging 2H

• Jadason posted a 2Q18 net loss of S$0.4m, below our expectations.
• Although the gross profit margin improved to 22.4%, the 7% revenue decline led to lower profitability.
• Excluding an exchange loss of S$0.6m, adjusted net profit was S$0.1m.
• The company has guided for a challenging 2H given trade tensions between the US and China, which affect Jadason’s end customers.
• We value Jadason at an unchanged 1.0x CY18 P/BV but lower our target price to 7.3 Scts due to earnings cuts.

2Q18 results missed expectations

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• 2Q18 was a miss with a loss of S$0.4m instead of profits. Excluding an exchange loss of S$0.4m, adjusted net profit was S$0.1m. The positive in the 2Q18 results was the recovery in gross profit margin to 22.4%, driven by a better product mix in the PCB drilling segment.
• At the operating profit level, the distribution business incurred a loss of S$0.5m while the PCB drilling business reported a profit of S$0.3m. The company remained in a net cash position. 1H was below FY18F expectations at a loss of S$0.4m.

Expecting a challenging 2H

• 2Q18 earnings benefitted from better demand for 5G-related products. However, the outlook for 2H is being affected by the trade war between US and China. 
• Upside earnings risk in 2H18 stems from its end smartphone customer’s new product launch in the third quarter.
• The other upside risks to our FY18F forecast, where we now project losses, come from insurance compensation (for a fire at one of its factories) and the sale of scrap materials.

Maintain ADD

• We now assume losses for FY18-20F given the uncertain demand outlook. At an unchanged 1.0x CY18 P/BV, our target price falls to S$0.073.
• A downside risk is a total trade war between the US and China.
• Upside risks may come from the US’s willingness to resolve trade concerns with China, which will affect our FY19-20F in particular.

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-16

SGX Stock Analyst Report ADD Maintain ADD 0.073 Down 0.077