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RHB starts coverage of Jadason with high hopes

Jude Chan
Jude Chan • 3 min read
RHB starts coverage of Jadason with high hopes
SINGAPORE (May 8): Bumper years lay ahead for formerly unfancied Jadason Enterprises, after the printed circuit board (PCB) drilling and mass lamination service provider staged a turnaround in FY16, says RHB Research.
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SINGAPORE (May 8): Bumper years lay ahead for formerly unfancied Jadason Enterprises, after the printed circuit board (PCB) drilling and mass lamination service provider staged a turnaround in FY16, says RHB Research.

RHB is initiating coverage on Jadason with a “buy” call and a target price of 15 cents – more than double of its opening price of 7.4 cents on Monday.

Calling it “a gem with an explosive NPAT (net profit after tax) growth,” RHB analyst Jarick Seet believes Jadason is a “key proxy to the uptrend in the semiconductor space”.

Since revamping its business model. Jadason jettisoned the sourcing of materials for its clients, which had left it vulnerable to foreign exchange risks and changes in material costs.

“Gross margins for this segment have since become highly lucrative at more than 40%,” says Seet in a Monday report.

Margins have also improved the number of holes required in a PCB – which are able to be drilled using the same machines with the same precision – increases.

“Previously, it was doing PCBs with 10,000 holes and below. Currently, it has customers in the mobile and automotive segments that require 20,000-100,000 and 5000-20,000 holes in a PCB respectively,” Seet says.

Jadason’s total gross profit margins improved to 23% in FY16, after falling to -3% the year before. For FY17F and FY18F, RHB expects it to rise to 32% and 33%, respectively.

In addition, Jadason has secured a new project involving a “leading smartphone player in the US” for the next three years. Targeted to launch in the second half of 2017, Seet says the new model of this smartphone is likely to require at least 40,000 holes in a PCB.

“We think that this would cause its drilling segment revenue to rise by 20-30% per annum over the next two to three years, resulting in its NPAT to grow significantly for FY17F and FY18F,” he adds. “Following a visit to its factory in Dongguan and coupled with the positive sector outlook as well as its growth plans, we are confident of the bumper years ahead and expect a FY16-19F NPAT CAGR of 70%.”

Meanwhile, Jadason’s strong balance sheet with a net cash position of $18 million as at FY16 – approximately 40% of its market cap – could open the doors for giving of dividends to reward shareholders if it continues to perform well.

Due to the low capex requirement, we expect it to continue generating positive cash flow, and potentially distributing an attractive dividend yield of 9.6% for FY17F,” says Seet.

As at 12.44pm, shares of Jadason are trading 10.8% higher at 8.2 cents.

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