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JEP Holdings Sets On Expanding Precision Engineering Business

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JEP Holdings (JEP), a local public-listed company since October 2004, is embarking on an approach to aggressively grow its aircraft precision business. The Catalist-listed company had appointed Andy Luong, who is the founder and current CEO of UMS Holdings, as JEP’s new acting CEO in July 2018 following the exit of former CEO, Joe Lau. UMS Holdings holds a 30 percent in JEP.

In an interview published by The Business Times on 14 June 2018, the paper quoted Luong as saying that, “JEP is undervalued. That will change eventually.” Luong then added at that time that JEP plans to rebuild the company structure and be more proactive in looking for jobs that are profitable.

About JEP

JEP is a Singapore-based precision engineering company currently based in Seletar Aerospace Park. It provides services for various industries including aerospace, oil and gas, electronics and semiconductor, telecommunication, medical industries, as well as precision engineering for automotive parts.

JEP also engages in trading of machine parts and customized cutting tools for its customers, and large format precision engineering and equipment fabrication service.

Historical Financial Performance

FY14 FY15 FY16 FY17 FY18
Revenue (S$’m) 49.8 58.8 71.9 86.1 85.9
Revenue Growth 18.1% 22.4% 19.7% -0.3%
Operaing Profit (S$’m) -0.63 0.76 -0.17 1.17 4.71
Operating Margins (%) -1.3% 1.3% -0.24% 1.4% 5.5%
Income Available to Com Excl ExtraOrd (S$’000) -0.91 0.57 0.15 0.83 2.19
Income Available to Common Shareholders Excl ExtraOrd Margins (%) -1.5% 1.0% 0.2% 1.0% 2.6%

table 1

Source: SGX StockFacts, Company’s Financials

The total revenue for JEP fell slightly on a year-over-year (YoY) basis by minus 0.3 percent in FY18 to S$85.9 million, while both operating margins, and net income margins (excl. extraordinary items) rose.

Paring Down Debt

jep table 2

Source: SGX StockFacts, Company’s Financials

Meanwhile, debt level has been pared down from a year ago, while cash and short-term investments fell from $6.2 million in FY17 to $4.5 million in FY18. Despite the drop in cash position, cash flow from operating activities (CFO) rose from $4.9 million in FY17 to S$10.13 million in FY18.

Peer Comparison

Valuation Comparisons JEP Holdings Ltd UMS Holdings Ltd.
Price/Book Value (P/B) 1.2 1.7
Price/Sales (P/S) 0.75 3.1
Dividend Yield (%) N/A 6.1%
Dividend Yield (5-year average) (%) N/A 7.4%
Enterprise Value (EV) (S$’millions) 103.6 400.4
Price/Cash Flow (P/CF) 7.8 8.2
Price/Earnings (P/E) 34.2 9.2
Net Debt (S$’millions) 38.7 6.2

Source: SGX StockFacts, Company’s Financials

Based on the table shown above, JEP seems to be trading at a higher valuation than UMS by most metrics besides Price-to-Book (P/B), and Price-to-Sales (P/S), and Price-to-Cash Flow (P/CF).

jep table

Source: Shares Investment (26 April 2019)

Moreover, by the mainstream metric of price-to-earnings multiple, JEP is also trading at a higher valuation compared to the industry average.

Technical Analysis

jep chart

Source: Shares Investment (April 26, 2019)

Looking at the twelve-month technical chart of JEP, the stock appeared to be in a technical ‘breakout’. This comes after weeks of consolidation seen in the stock price movements.

A Viable Addition?

While there have indeed been some improvements in the overall capital structure of and profit profile of JEP, the stock’s valuation, however, appeared to be relatively expensive as compared to the industry and the peer company UMS. At the current valuation, the margin of error would be enormous.

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