SINGAPORE (Mar 12): CIMB is starting coverage of post-restructured Jubilee Industries at “add” with a target of 5.1 cents.
This is on expectations the plastic manufacturer for the electronics industry could report a net profit in FY18.
After four straight half-year losses since the acquisition of its electronic component distribution (ECD) business in 2015, the group posted net profit of $0.8 million in 1H18.
In a Friday report, analyst Colin Tan says Jubilee’s $4 million increase in sales over the latest 1H period could spark an earnings turnaround in FY18, reversing from a gross loss of $1.6 million in FY17.
The recovery would further be supported by the group’s expanding moulding capacity through its Dec 2017 acquisition of HonFoong Plastic Industries for $3.5 million.
Factoring capacity expansion and contributions from HonFoong, Tan estimates net profit to more than double to $4.8 million in FY19.
Over the next 12 months, Jubilee is expected to quadruple its plastic injection moulding capacity as the number of machines is expected to increase by fivefold to 151.
This will add to its capacity 93 moulding machines in Batam, Indonesia. In addition, it aims to add 32 new machines to its existing Malaysian plant, which currently has 26 machines.
This morning, Jubilee announced it had increased its stake in its Malaysian associate, EG Industries Berhad from 11.72% to 13.03% for a consideration of $657,200.
See: Jubilee Industries increases stake in EG Industries to 13.03%
See: Jubilee Industries acquires Honfoong Plastics for $3.5 mil
“Gross margins are likely to improve moving forward, in our view, as higher-margin mechanical business turns around and expands,” says Tan.
Tan says CIMB's price target has factored in a possible dilution due to the group’s rights-cum-warrants issue which was completed on Mar 1.
Including the dilution, the stock is trading at 6.4 times CY19 earings based on its Thursday closing price of 3.7 cents.
As at 10.34am, shares in Jubilee Industries are trading 0.4 cent higher at 4.1 cents, or 13.7 times FY18 book value.