Jackspeed @ 15.5cts

Jackspeed was listed in Nov 2003 at an IPO price of 30cts.

At the IPO, 33 million new shares and 6.6 million vendor shares were offered, with a subscription rate of 200.4 times. First day trading closed at 32 cts.

All time trading high was 42.5 cts in Mar 2004 and all time low to date was 14.5cts in Aug 2005.

Total shares in issue is 131 million, giving it a market cap of S$20.3 million at 15.5 cts.

Jackspeed caught my eyes as the first kind of company, a manufacturer of automotive leather trim to be listed in Singapore (noted that some of my company's cars leather seats are also fitted by Jackspeed). Automotive markets are growing in Thailand and Malaysia, especially Thailand which benefited from the the shifting of car manufacturing bases from Japan. I requested for a copy of Mar 2005 annual report and it was promptly sent to me within 2 days. So this provided me with some reading material over this weekend.

Now let me examine Jackspeed more on its history of business, financials, and future for growth before I go on to examine its valuation and hence investment potentials.

The company was establised in 1993, started as a trader of automobile parts and accessories, founded by Liew Ham Chow (Chairman & CEO), Liew Nyok Wah (his brother) and Chua Poh Chuan (Shareholder). Since then, the Group has grown into a manufacturer of automotive leather trim with one production facility each in Singapore, Malaysia (cater for Europe market), Thailand and Indonesia.

At the IPO, Liew Ham Chow, sold 2.2 millions of his holding (2.24% of pre-IPO share cap) and retained 38.4% of post-IPO share cap. Since then, he has not sold anymore shares. The other vendor of 1.1 million shares was Neo Gim Kong who resigned as an exective director on 31 Aug 2004. The rest of the shares were sold by non-management pre-IPO investors, Sirius Capital Holdings and Tan Wee Teck, who retained 9.15 million (6.98%) each after IPO, but names no longer found in 2005 AR substantial shareholders list.

In addition to the manufacture of custom-fit automotive leather trim for car seats, Jackspeed also provides leather wrapping for other automotive interior products such as steering wheels, consoles, gear-shift knobs and hand brakes. Besides serving the automotive industry, it also cater to specialised industries such as marine and aerospace, providing leather upholstery for pleasure crafts, helicopters and planes for private client. Jackspeed has achieved several international certifications and the 'Jackspeed' brand was one of the winners of the Singapore Promising Brand Award in 2003.


Revenue has been growing consistently over the past years, mainly due to the CD growth in Europe and growth in the OEM market in Malaysia that compensated for the fall in the Singapore Sales. CD provides almost all of the operating profit as OEM has very low OP of 1.8% (FY2005).

In Mar 2004, the company has annouced the secured of a 3 years contract OEM RMB55M from Naza Automotive (KIA) and expansion of its production capacity in Malaysia (S$1.5M from IPO proceeds is intended for production expansion in Malaysia). Jackspeed was also awarded by Airasia to supply and fabricate leather seat covers, aircraft interior reburishment and seat cushions for an undisclosed amount. This contract, in my view, is not substantial by amount, but an important breakthrough to the commercial aircraft industry due to the growing regional budget carrier market. Its contribution is an area to watch in future result annoucement.


The Europe market (mainly UK) is expected to continue to grow, as explained in 2005 AR due to the increasing lifestyle preference in Europe for leather seats in cars over the fabric types. In FY2005, Jackspeed acquired 100% of the Thailand ops (from 40%) which could explain the reason for sales increased in 'Others' geographical market. The average OP margin is expected to drop slightly for Mar FY2006 due to increased contribution from OEM(low margin but high volume), althought the CD growth in Europe is expected to mitigate part of this decrease. Although mentioned in its Prospectus about its intention to expand into the PRC market, no development has taken place to date. On the other hand, the company is faster to move into the Australian market, a big but untested market (not mentioned in IPO) by setting up a subsidairy in Jan 2004 to tap its OEM & CD market.

The prospectus cited following risks relating to its business:
1. Raw material price fluctuations, mainly leather >59% of the operating costs
2. Low barrier of entry for CD & RAM market - mitigated by long established relationship with customers (70% of 2003 sales from repeat customers)
3. Heavy reliance in automobile industry
4. CD market is subject to changes in policies of car distributors & car manufacturers
e.g. loss of supply contract established since 1998 for BMW trim leather in early 2003 due to Performance Motor began to import fully fitted cars instead of fitting in S'pore. Company currently still supply trim leather to Kah Motor, Tan Chong Motor and StarsAutor.
5. Changing new car models which subject company to tender process for the new fittings. End of lifecyle of certain car models have affected the CD revenue in Singapore over the past few years.
6. Substitutes for leather trimmings which may affect the company's production method
7. No long term supply contracts with 6 mains customers, consistuted 70% of 2003 sales.
8. Expanded production capacity in Malaysia, need volume to keep up the capacity after the contract with Naza is over (high overhead costs) - preceived risk by me

Jackspeed's Mar 2005 shows an operating cashflow of $3.3M and spent $1.9M on purchases of fixed assets, mainly in expanding the production capacity in Malaysia. Less capex is expected un FY 2006, having incurred most in FY2005. The company has also reduced its bank loan by $3.1M, hence reducing the interest costs considerably, and is in a net cash position of $6.8M or abt 5 cts/share, largely due to the balance of IPO proceeds. The balance sheet seems to be relatively strong with net current asset of $11M. In FY2005, a total dividend of 0.9 cts was paid, giving a yield of 5.8% at current price.

A strong point for this company is its niche market which there seem not to be many large competitors, and the company is quite sucessful in Malaysia, Thailand and Europe. Its recent move into new market Australia is yet to show results, but if proven sucessful, could increase my confidence for its market penetrations in other new markets. Also, the directors are modestly renumerated ($429K) and dividend payout is expected to remain generously due to high share ownership by the CEO.

Noted also that in June 2005, the executive director cum COO, Chien Ming Chen has redesignated as non-executive director and subsequently resigned as director in July 2005. The CEO is now wearing 3 hats of Chairman, CEO & COO. Not sure if there is an internal disagreement and what kind of implication for the company at management level.

Apart from the changes at management level, the risk of losing any major customers (due to change in procurement policy, or new car models) is my top concern and the company has to reduce its dependency in those major CDs. I would want to watch out for the 1HFY06 results in order to assess if its diversify plans are on track and cashflow remain strong. At the price of 15.5 cts, it is a reasonable price, but the margin of safety should be more unless my concern can be addressed.

A company to watch with patience.