Jasper Investments

3 Dec 2008

Jasper Investments operates drilling rigs and offers engineering services for buildings. Currently, steel demand has gone out the window as construction activity wanes. Sales of big-ticket items such as houses and cars have dropped as consumers rein in their spending. Oil has fallen to about US$50 a barrel from US$147.27 in July as demand for energy dissipates.

The company is looking forward to the deployment next year of its drillship, the Neptune Explorer, which is currently being upgraded. It is also falling back on its existing order book to tie it through the slowdown in the construction industry.

The company's first-half 2009 revenue rose to US$81m thanks to the inclusion of revenue from its subsidiaries. Net profit came in at US$7.9m compared to US$1.4m previously despite higher expenses incurred. The business generated US$2.1m in cash from operations compared to the US$744,000 last year.

DBS Vickers thinks that there is limited upside left in Jasper Investments but Westcomb Financial disagrees. Westcomb maintained its BUY call on Jasper with a target price of S$0.30. It has forecast growing earnings for the next two years and is confident of an upside potential of 36%.

DBS Vickers on the other hand, has initiated coverage of Jasper with a HOLD and has a target price of S$0.15. It also expects higher earnings from the business in the next two years. DBS Vickers believes that the company's weakness lies in the market's perception on falling oil prices and the implication on drilling activities. Because of that, the analyst suspects that the share price may be taking a beating in the near future.

According to the Business Times, on Friday, November 28, PM Lee Hsien Loong said that "Singapore is likely to face several years of slow growth after the recession." He added that the magnitude of the current crisis is the worst in 60 years.

With the outlook looking so bleak, you can't help but question the Westcomb's optimism. And what other perceptions does DBS Vickers expects the market to have other than a gloomy one?

The fact is oil prices are falling and construction just isn't as hot as it used to be. For FY2008, Jasper incurred a net loss of US$4.6m and slipped into a negative free cashflow of US$20.9m. It has not paid any dividends since 2002.

Analysts surveyed by Reuters have on average an UNDERPERFORM call on the stock.

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