SINGAPORE (Oct 13): NRA Capital continues to expect Jubilee Industries to stage a turnaround in FY18, starting with some profitability in 1H18 followed by higher returns in 2H18.
On Wednesday, Jubilee proposed the issue of one rights share cum one free detachable warrant for every two existing shares at the issue price of 4.5 cents each.
See: Jubilee to raise $15 mil from rights issue for working capital and fund business expansion
Each warrant can be converted into one share at the exercise price of 4.5 cents, at any time within two years from the date of issue of the warrant.
Jubilee plans to spend about $9 million on the mechanical business, evenly split between capacity addition and M&A. The remaining $6 million will be used as working capital, primarily for the growing electronic business.
The funds will provide the additional option of organic growth by scaling up the mechanical business. As the current machines are operating at full capacity, the company plans to have 150 moulding machines for the mechanical business by end FY18, up at least five times from the current 20 to 30 machines.
“The targeted exponential growth in capacity in turn supports our base case scenario forecasts of high revenue growth from the mechanical segment, while reducing reliance on M&As,” says analyst Liu Jinshu in a Friday report.
NRA’s model projects revenue from the mechanical business revenue to grow from $8.36 million in FY17 to $18.36 million in FY18 and $38.36 million in FY19. “The target increase in moulding machines matches our projected revenue growth,” says the analyst.
“On balance, we maintain our Overweight rating on Jubilee with an unchanged high return and high-average risk qualification,” adds Liu who has a fair value of 6.7 cents.
Shares in Jubilee are trading 0.2 cent lower at 4.6 cents.
