In early-2018, listed semi-conductor player UMS Holdings acquired a controlling stake in JEP Holdings, which makes precision parts and provides engineering services for customers in the aviation industry.
UMS now holds a 40.1% stake in JEP.
According to UOB Kay Hian analyst Clement Ho, this move proved to be JEP’s saving grace and happened at a “good time”, two years before the massive impact on the aerospace industry due to the Covid-19 pandemic.
To this end, the research house is initiating a “buy” call on JEP Holdings with a target price of 20 cents.
In an Oct 26 report, Ho says, “Following the controlling stake taken over by UMS Holdings in mid-2019, JEP Holdings (JEP) could see a timely revenue shift from the waning aerospace industry and towards the expanding semiconductor industry. Currently fulfilling its backlog to aerospace clients that have not pushed back or cancelled their orders, JEP’s semiconductor division, Dolphin Engineering, is understood to be doing well as of August.”
Meanwhile, JEP could be a potential beneficiary of the US-China trade war. Headquartered in Singapore, JEP operates out of four manufacturing facilities across the island. Together with its controlling shareholder, UMS, the duo has no manufacturing facilities in China and are not directly impacted by the on-going trade tensions between the US and China.
“With the geographic positioning in the region, JEP could benefit from new clients that are increasingly shifting away from the North-Asia region,” says Ho.
Since 4QFY2018, JEP started streamlining its operations by moving labour-intensive works from Singapore to Malaysia, and with a string of cost-cutting exercises. This resulted in a significant improvement in profitability in FY2018 and FY2019.
Accordingly, net profit has risen from a region close to breakeven throughout FY2014 to FY2017, to $2.2 million and $6.5 million in 2018 and 2019 respectively. Supported by improved profitability, the analyst expects earnings to stay elevated in FY2020 to FY2022.
As at 11.55am, shares in JEP are trading at 18 cents, giving it a FY2020 price-to earnings ratio of 12.2 times and price-to-book ratio of 1.1 times.