JADASON: 'Firing on all fronts; reiterate BUY recommendation'
CIMB-GK analyst: Jonathan Ng
We met management last week for a business update and walked away feeling confident in a strong turnaround in 2010.
Business in all segments remained robust in 1Q10, and the group is starting to build backlog for its equipment distribution business.
We reiterate our BUY recommendation and target price of S$0.125 (32% upside potential),which pegs it at only 6x CY11 P/E, still at the lower end of its historical trading band. The stock is trading at a 32% discount to its book value of S$0.14 as at end-Dec 09.
Below are our takeaways:
• Take a rest after Christmas? No time. The manufacturing arm, which includes drilling services and mass lamination, has been very busy since the beginning of the year despite after exiting the seasonally busiest 4Q.
Both the Dongguan and Suzhou facilities shut down for only a day during CNY to fulfill robust order flows and are still maxed out with some customers having to wait for more than a day for drilling services. Jadason thus has the luxury again of cherry-picking jobs that give it better returns.
Management says strong orders have come from various industries this time round. Its positive comments echoed those of Elec & Eltek (ELEC SP, Outperform), when we met the company after its 4Q09 results in late February.
• Where are my machines? Its lower-margin equipment-distribution business is also starting to receive orders, and is building up backlog again. As at mid-March, backlog orders topped US$20m. We believe PCB firms are starting to expand their capacity on the back of an improved macro climate. Delivery lead-time is more than 2 months now for drilling machines.
• About to turn net cash; more dividends? Management will continue to control capex and working capital tightly this year. Thus, we believe the group is on track to end the year with net cash, and do not rule out the possibility of higher dividends.
• Heavy dependence on PCB industry. Almost its entire revenue comes from PCB fabricators located in China. As such, a sudden drop in demand may affect its performance.
• Short lead time for manufacturing services. Although its manufacturing service operations are enjoying full utilisation now, demand may change very quickly given the short lead time.
VENTURE CORP (target price: $10.06) added to Nomura’s Conviction Long list
Nomura International analysts: Winnie Chan & Amy Lee, CFA
We are adding Venture Corp (VMS SP, BUY) to our Conviction Long list, given the company’s strong fundamentals and the improvement in demand.
� Well-managed transition and recovery in the demand
While Venture (VMS SP, BUY) has been trading sideways, the recovery in enterprise-related demand is providing more upside on the stock.
Our analysts believe catalysts are a) margins expanding in FY10, as product mix would improve with the low-margin printer business slipping away; and b) acceleration in sales in the T&M/networking segment.
Venture has expanded its ODM business from printing to networking, test /measurement and medical. This strategy provides greater support to margins than pure EMS manufacturing. The company also maintains a strong balance sheet with net cash at S$453mn or 24% of equity at 4Q09, up from 14% at 4Q08.