SINGAPORE (Mar 7): CIMB is maintaining its “add” call on Jadason Enterprises with a lower target price of 8 cents from 11 cents previously.
In a Tuesday report, analyst William Tng notes that while the group’s 4Q and FY17 results came in below the research house’s expectations, demand for printed circuit board (PCB) drilling remained robust over the past fiscal year with the group anticipating strong demand from its customers in FY18.
“The development of a 5G mobile network in China should provide further business opportunities for Jadason. In the equipment distribution business, the company expects the environment to remain challenging as PCB manufacturers are still cautious in terms of capital expenditure,” says Tng.
Nonetheless, the analyst cautions that the group continues to face challenges in hiring more skilled workers to fulfill its production requirements, with the problem of high workforce turnover compounding the issue.
However, CIMB is lowering Jadason's FY18-19 core EPS by 36-47% on moderated gross margin assumptions due to the impact of higher wages and lack of skilled workers
“Our target is based on an unchanged 12.34 times P/E multiple (2 s.d. above the average forward P/E during the FY04-07 earnings recovery cycle) but dips to $0.08. A downside risk is the worsening of the labour situation. Upside risks to our call could come from Jadason hiring more skilled workers,” Tng concludes.
As at 4.03pm, shares in Jadason are trading 2.9% lower at 6.8 cents or 0.9 times FY18 book.
