Jackspeed Corporation

UOBKayhian on 27 Jul 2012

What’s New
— A new growth driver? Jackspeed Corporation (Jackspeed) signed a memorandum of understanding (MOU) with CSR Ziyang and Topland Engineering to explore the possibility of a US$112m tender to re-furbish 56 Alsthom locomotives for the State Railway of Thailand (SRT).
Stock Impact
· Turning around. Since Jackspeed’s current chairman Mr Yap Kian Peng came on board in Dec 10, the group has seen a significant turnaround. From a loss of S$1.2m in FY11 prior to changes in management, Jackspeed announced a modest net profit of S$53,000 in 1QFY13. The improvement was driven by disposal of non-core assets, accretive acquisitions and cost savings from its internal restructuring exercise.
· Strong financials. Post restructuring, the group’s financial position has improved. As at Feb 12, net gearing stood at 20.9%. In 1QFY13, Jackspeed raised a further S$3.3m through the placement of new shares for working capital.
· Emerging new business. We believe the group’s MOU to tender for the railway project could indicate a new growth driver for Jackspeed. Should the consortium be successful, this could lead to potentially more jobs given the Thai government’s policy and stimulus packages implemented to promote infrastructure development.
· Opportunities in Thailand. The Thai government established the Strategic Formulation Committee for Reconstruction and Future Development (SCRF) and has a five-year spending programme worth Bt2.67t. Of this, Bt2.27t (US$71.7b) is designated for new infrastructure projects in 2012-16.

Valuation
· Watch this space. At this stage, the limited details on the MOU will mean valuing the group will be challenging. On a P/B basis, the stock is trading at 1.7x. We think the market will be awaiting more development on the turnaround in the group’s existing businesses as well as a potential new growth driver through participating in Thailand’s infrastructure spending.