SINGAPORE (May 16): CGS-CIMB Securities is keeping its “add” recommendation on Jadason Enterprises, despite an abysmal 1Q which saw earnings come in at 0.6% of the brokerage’s full-year forecast.

Jadason saw its earnings plunge 93% to $21,000 for 1Q18, from $0.3 million a year ago.

1Q18 revenue dipped slightly by 1% to $13.2 million, even as cost of sales rose 5% to $11.2 million.

Gross profit fell 22% to $2.1 million in 1Q18, due mainly to the disruption in production activities in March as a result of a minor fire at the group’s subsidiary which is principally engaged in the mass lamination of printed circuit boards.

“We believe FY18 could be a challenging year given trade tensions between the US and China which affects Jadason’s end customers,” says analyst William Tng in a report on Tuesday. “Given the poor 1Q18 performance, Jadason has a lot of catching up to do for the remaining nine months.”

Given the current macro uncertainties, CGS-CIMB has switched its valuation methodology to price-to-book value (P/BV) instead of price-to-earnings (P/E) previously.

As a result, it now has a target price of 7.7 cents on Jadason, based on 1.0 times CY18 P/BV. This is 3.8% lower than the previous target price of 8.0 cents, which was 12.34 times CY19 P/E multiple.

The way Tng sees it, Jadason’s only positive comes from the manufacturing business segment, even as its distribution business is expected to remain challenging.

“Based on discussions with long-term customers, Jadason expects its Manufacturing and Support Services business to see a healthy level of activities in FY18, driven by opportunities in the 5th generation (5G) mobile networks in China,” Tng says.

As at 2.15pm, shares of Jadason are trading flat at 5 cents, implying a P/E of 20.7 times, and a P/BV of 0.7 times for FY18.

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