• Jadason’s 1Q19 loss of S$1.5m exceeded our full-year loss forecast of S$1.1m.
• As sales fell, its production capacity was under-utilised, leading to a severe gross profit margin compression to 11.9%.
• Outlook remains challenging given the trade war and difficulty in finding workers.

1Q19 Loss Exceeded Our Full-year Loss Forecast

• JADASON ENTERPRISES LTD (SGX:J03)'s 1Q19 loss of S$1.5m was way above our FY19 S$1.1m loss forecast. Both the distribution and the manufacturing businesses saw revenue decline due to the trade war.
• At the operating level, the distribution business loss widened to S$369,000 versus a loss of S$43,000 in 1Q18. The manufacturing segment suffered an operating loss of S$724,000 versus an operating profit of S$287,000 in 1Q18.

FY19 Will be Tough

• The trade war is likely to dampen the demand for electronic devices which is a headwind for Jadason. At the same time, production workers remain in limited supply.
• Meanwhile, the roll-out of 5G mobile services in China could be an opportunity for Jadason, in our view. Jadason plans to continue to rationalise and reduce its operating costs.

Maintain ADD

• We widen our loss forecasts to reflect the decreased revenue potential due to the trade war. At an unchanged 1.0x CY19 P/BV, our new Target Price is S$0.059.
• Risks are further order declines.
• Potential re-rating catalysts are resolution of the trade war and stronger than expected orders from the 5G mobile services demand.

Source: CGS-CIMB Research - 10 May 2019