SINGAPORE (Oct 4): NRA Capital is maintaining “overweight” on Jubilee Industries Holdings, the producer of precision plastic injection molds, at a fair value of 7 cents.
In a Wednesday report, analyst Liu Jinshu highlights Jubilee as a high-return, high average risk prospect based on its improving earnings outlook, increasing merger and acquisition (M&A) momentum, and its potential to spin off one off its business units in the longer term.
In his view, the company’s recent developments, such as its improving financial performance on the back of its profitable Electronic Business, point to a turnaround in the business. This is further signalled by its parent company, Accrelist, more than doubling its stake in Jubilee to 64.73% from 29.1% previously in June this year.
As for Jubilee’s loss-making legacy Mechanical Business, Liu believes the segment should cease to see losses in FY18 following its downsizing in FY17, when some 116 staff were retrenched.
“The ongoing acquisition of the Pioneer Venture Group by the Mechanical Business included a pre-tax profit guarantee of $1 million for each of FY18 and FY19, and can be said to value accretive as the consideration is only six times the profit guarantee,” says Liu.
“We expect the company to embark on more acquisitions and have projected the issue of additional shares to fund these acquisitions.”
The analyst foresees Jubilee making PATMI of $1.38 million in FY18, and assumes flat profit growth and cumulative profit of $11.4 million from FY19-22 in the bear case.
In the bear case of more aggressive growth and a resultant increase in economies of scale, the group is valued at $39.8 million over 970 million shares, or 4.1 cents per share, while the base case values the group at $76.7 million over 1.085 million shares or 7 cents per share.
“The risk is that upside is conditional on the odds of future growth being realised and will be significantly impaired if the company fails to rapidly scale up the Mechanical Business via M&A or organic growth. Secondly, there is the risk of further cash calls to fund working capital needs and acquisitions,” Liu explains.
“To factor in this risk, our base case workings are based on 1.085 billion shares outstanding, up from 672.5m shares today.”
As at 11.43am, shares in Jubilee are trading 2.33% higher at 4.4 cents, 21.4 times 2018F PER.
