SINGAPORE (May 18): RHB is maintaining its “neutral” call on Jadason with a lower target price of 5 cents.
The group’s 1Q18 earnings dropped 93% to $21,000 from $0.3 million in 1Q17.
Revenue was 1% lower y-o-y at $13.2 million, while cost of sales rose 5% to $11.2 million.
Hence, gross profit came in at $2.1 million, 22% lower y-o-y.
See: Jadason kept at 'add' despite earnings miss, uncertainties ahead
The slowdown in the global semiconductor sector has contributed to the group’s underperformance, as it took in lower-than-expected orders from major customers. It also booked narrower margins from existing orders, as competition intensified.
In addition, Jadason’s performance was also impacted by a disruption in production activities in March, which was caused by a minor fire at its subsidiary’s facility that is principally engaged in the mass lamination of printed circuit boards (PCBs).
During the quarter, the group’s equipment and supplies business saw revenue drop 9% y-o-y, mainly due to weaker sales of supplies to PCB manufacturers.
In a Friday report, analyst Jarick Seet says, “We expect this segment’s financial performance to remain weak in 2Q18.”
Meanwhile, after discussions held with long-term customers, the management expects its manufacturing and support services business to continue seeing a healthy level of activity in FY18. There are also business opportunities from the development of 5th -generation mobile networks in China.
“However, we do expect these potential new projects to only come on-stream from 3Q18 onwards, if Jadason is successful in securing these orders,” says Seet.
The group still has not completely solved its issue on shortage of workers.
The analyst previously expected the group to solve this by 1Q18, giving it the probability of being able to ramp up production back to a full utilisation rate. But it has only managed to hire about 50 to 100 workers, making it short of about 400 workers still, which hampers efforts to boost revenue growth.
“For now, we wait for the company to share further details on its headcount issue, and anticipate it to see a possible turnaround in 2H18,” adds Seet.
As at 3.25pm, shares in Jadason are trading at 5 cents, meeting RHB’s target price.
The stock is also trading at 19.8 times FY18 recurring earnings with a dividend yield of 2.0%.
