SINGAPORE (Nov 9): RHB is maintaining its “buy” call on Jadason Enterprises with a target price of 10 cents.

This came despite the group announcing 3Q17 earnings were down 19% to $1 million from 1.3 million last year, partially due to a writeback of allowance for inventory obsolescence of $0.4 million, which was included into cost of sales.

Revenue for the quarter came in at $17.6 million, 18% higher than $14.9 million last year, as both the group’s business segments recorded higher business activities.

Revenue for the equipment and supplies business was up 25% to $7.0 million, while revenue for the manufacturing and support business increased 145 to 10.6 million.

Overall, gross profit dropped 16% to $3.4 million from $4.0 million a year ago.

See: Jadason posts 19% decline in 3Q earnings to $1 mil

In a Thursday report, analyst Jarick Seet says that the group underperformed in 3Q17 due to forewarned issues.

To recap, it was previously mentioned that the group was facing issues in hiring workforce to keep up with the growth

See: Jadason to ride on launch of iPhone 8 but shortages have to be solved first

There is a possibility that the group would only be able to hire more workforce in Feb 2018, after the Lunar New Year. Seet expects this issue to be solved by 1Q18.

In addition, due to the boom in the semiconductor industry, the high precision parts the company ordered for upgrading the machines are in short supply and may be delayed for delivery to Nov 2017.

“This has caused a negative impact to the 3Q17 earnings, which fell short of our FY17 NPAT estimate,” says Seet.

The management says that it has overflowing orders from customers and the ramp up to full utilisation would have been possible if not for the shortage of workers and parts.

The analyst forecasts a strong 4Q17 for the group ahead, as orders will continue to increase due to new customers secured in the mobile segment and the customers’ newly launched mobile product that enjoys a strong global demand.

In addition, the delayed machine parts should be delivered which could help improve and speed up the group’s utilisation and production.

“As a result, we expect a stronger 4Q17 ahead. We also expect margins to improve as the company dropped its lower margin customers in order to be able to accommodate those projects with higher margins,” says Seet.

As at 11.35am, shares in Jadason are trading at 8.9 cents or 1.45 times FY17 book with a dividend yield of 4.0%.