Jadason to ride on launch of iPhone 8 but shortages have to be solved first

In a Monday report, analyst Jarick Seet says the iPhone 8 launch has seen zero machines involved in the ramp-up in June to 85 machines at end August, after paying a visit to Jadason’s factory in Dongguan, China.

However, due to a shortage of workers and delay of machine parts for upgrading, Jadason had to drop several existing customers and allocate their resources to the iPhone project which enjoys higher margin.

“We understand that Jadason is facing issues on hiring workforce to keep up with their ramp-up,” says Seet.

The group had about 600 workers as of 2016 but despite a more than 50% increase in revenue, the workforce number has remained unchanged.

Seet predicts that the group will only be able to obtain the additional workforce after the Lunar New Year in Feb 2018.

In addition, the boom in the semiconductor industry has caused a shortage in high precision parts the group ordered to upgrade their machines. The group is scheduled to upgrade 40 additional machines but this may be delayed for delivery until November.

“We understand from the management that the company has overflowing orders from other customers and the ramp up to full utilisation would have been possible if not for the shortage of workers and parts,” says Seet.

Seet still believes that recovery and growth is still intact for the group, as he estimates that the company’s ramp-up to full utilisation will happen in FY18, provided the labour and parts shortage issues is resolved.

The group is also expected to benefit from a long-term growth from the iPhone 8 launch in September as well as attractive growth ahead in the upcoming quarters.

“As a result, we cut our FY17 forecasts by 42%, resulting in a lower DCF-derived target price of 12 cents, which represents a FY18F P/E of 11.4x,” adds Seet.

As at 9.34am, shares in Jadason are trading at 10 cents with a dividend yield of 1.0% in Dec 17F.