SINGAPORE (Nov 13): CIMB Research continues to rate Jadason Enterprises at “add” with a lower target price of 11 cents after rolling over its valuation basis to FY19F estimates, still based on 12.34 times P/E – which is 2 s.d. above the average forward P/E during the FY04-07 earnings recovery cycle.
This comes after the group last week reported 3Q17 and 9M17 revenue in line at 28% of 73% of CIMB’s FY17F estimates, respectively, although net profits for the two periods came in below full-year expectations at 26% and 51%.
See: Jadason posts 19% decline in 3Q earnings to $1 mil
In a Friday report, analyst William Tng opines that Jadason’s results for 3Q would have been better had the group not suffered from a lack of workers, as the decline in gross margin partially arose form higher overtime pay for its workers due to its labour shortage in China.
After moderating gross margin assumptions, Tng has lowered his FY17-19F core earnings per share (EPS) estimates by 13-17% to factor the impact of higher overtime pay, and cautious of the downside risk of the worsening labour situation due to worker fatigue, as Jadason’s workforce has been observed to have been consistently clocking overtime work.
The group’s balance sheet nevertheless remains strong, in CIMB’s view, with reduced bank borrowings and net cash per share of 0.75 cents as at end-Sept.
“Jadason guided that the distribution business continued to face challenges as customers remained cautious with capital expenditure. In the manufacturing business, the company believes 4Q17F will see good demand from customers,” notes the analyst.
“However, it still faces the challenge of finding workers. Jadason has expanded its recruiting efforts to include mature workers. The company remains concerned about the sufficiency of its labour force, especially for 1Q18F as the Chinese New Year holidays loom.”
As at 10.35am, shares in Jadason are trading 2.3% lower at 8.5 cents, or 1.09 times FY18 price-to-book value.
