Jadason Enterprise Ltd

Stronger 3Q07 earnings. Jadason Enterprises Ltd is poised to makefurther progress in its earnings recovery in 4Q07, based on the updatefrom management. As a recap, Jadason recently posted a 31.8% YoY and48.8% QoQ fall in 3Q07 revenue to S$34.0m, hit by sharp decrease (down54.0% YoY and 67.9% QoQ) in equipment sales to S$16.7m. However,net profit jumped 34.1% YoY and 41.9% QoQ to S4.5m, mainly due to tworeasons. The first was a S$1.0m forex gain in the quarter, versus S$0.2mgain in 3Q06 and S$0.3m loss in 2Q07. The second and more importantreason was due to the strong demand for its PCB drilling and masslamination services, as the higher margin business grew 28.3% YoY and20.7% QoQ in 3Q07. This boosted its overall gross margin to 29.4%, from17.3% in 3Q06 and 14.1% in 2Q07, and net margin to 13.2%, versus 6.7%and 4.8%, respectively. For 9M07, revenue was down 17.3% at S$148.6m,while net profit fell 23.5% to S$10.0m.Earnings recovery to continue. Going forward, management expectsthe earnings recovery to continue, boosted by the still-strong demand forits PCB drilling and PCB mass lamination business; we understand thatthe facilities have been running at above 90% utilization rate, aided by thebuoyant mobile phone market in China as well as the booming consumerelectronics market. Management added that this would be on an increasedcapacity of 220 drilling machines, versus 140 last year, and that the productmix has also improved. Likewise, its equipment and supplies segmentbusiness has picked up and Jadason is now sitting on a healthy orderbacklog of US$50-60m, which it expects to deliver most of it in 4Q07. Assuch, management is looking towards a much better performance in thelast quarter.3G uncertainty remains biggest worry. Management also reassured usthat its forex exposure is only limited to its bank loans denominated inboth HK$ and US$; sales and cost of sales are denominated in RMB.However, the biggest worry would be the uncertainty over the award of 3Glicenses in China, where further delays could affect the order visibility. Atcurrent price, Jadason trades at an inexpensive 6.1x historical PER, ascompared to its peers (See Table 1). We do not have a rating on the stock.