Trade Diversification And Duty Advantages Will Support Multi Year Expansion In Production Capacity

Catalysts

About Jerash Holdings (US)

Jerash Holdings is a Jordan based apparel manufacturer supplying global brands with duty advantaged, flexible production capacity.

What are the underlying business or industry changes driving this perspective?

• Escalating U.S. tariffs on apparel sourced from China, India and other Asian hubs are pushing multinational brands to reallocate orders to Jordan, where Jerash benefits from materially lower import duties and multiple free trade agreements, which should support sustained volume growth and higher revenue.
• Global retailers are accelerating supply chain diversification to reduce geopolitical and logistics risk. Jerash is emerging as a preferred alternative with fully booked capacity through February and rising order projections into 2026, positioning the company for multi year expansion in top line and operating income.
• Recently completed facility expansion adding roughly 15 percent capacity, combined with a planned additional 5 to 10 percent via the Al Hasa extension and potential factory acquisitions, creates a clear runway to absorb incremental demand and leverage fixed costs, supporting margin expansion and earnings growth.
• Customer and product mix diversification beyond legacy outerwear into large volume basics, such as the multi million piece girl shorts program, smooths seasonality and improves year round capacity utilization, which should stabilize gross margins and support more predictable cash flow.
• Ongoing investments in production automation and ERP implementation are expected to improve labor efficiency and reduce manufacturing waste over the company’s five year plan. This provides a credible path back toward a targeted gross margin of about 20 percent and stronger net margins.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Jerash Holdings (US)'s revenue will grow by 11.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.4% today to 3.4% in 3 years time.
• Analysts expect earnings to reach $6.8 million (and earnings per share of $0.45) by about December 2028, up from $621.8 thousand today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 12.3x on those 2028 earnings, down from 61.5x today. This future PE is lower than the current PE for the US Luxury industry at 22.6x.
• Analysts expect the number of shares outstanding to grow by 3.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.62%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company’s competitive edge relies heavily on currently favorable U.S. and EU tariff regimes for Jordan. Any long-term shift in trade policy, tariff reductions for China, India and other Asian producers, or erosion of Jordan’s preferential access could compress Jerash’s price advantage, leading to slower order growth and pressure on revenue and earnings.
• Management expects gross margins to remain flat or lower in the near term as the business diversifies into new customers and product categories. If automation, ERP implementation and scale efficiencies take longer than the five year plan or fail to deliver the targeted 20 percent gross margin, sustained mid teens margins could structurally cap profitability and net income growth.
• The long term strategy depends on continuous capacity expansion through new facilities and potential factory acquisitions in Jordan. If demand from key customers such as North Face, New Balance and Hansoll normalizes or shifts elsewhere, Jerash could be left with underutilized capacity, resulting in weaker fixed cost absorption, lower operating margins and reduced earnings.
• Operations are concentrated in Jordan, where regional geopolitical risk and labor policy changes, including constraints on accessing skilled foreign workers, could disrupt production or raise labor costs over time. This would negatively affect manufacturing efficiency, gross margins and ultimately net income.
• Working capital intensity is rising, with inventory up 30 percent and net cash from operating activities dropping from 2.4 million to 318 thousand despite growth initiatives. If this trend persists alongside higher financing needs and dividends, the company may face tighter liquidity, higher interest expense and pressure on net margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $4.5 for Jerash Holdings (US) based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $200.4 million, earnings will come to $6.8 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of $3.01, the analyst price target of $4.5 is 33.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.