Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Tue, 9 Mar 2021, 9:00 AM


JHM Consolidation - Recovery Momentum to Continue

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The group is eyeing 25% YoY growth for its automotive segment, excluding new potential customers still at the qualification phase. Its industrial segment is anticipated to grow 40-50% YoY thanks to higher order forecasts from existing customers as well as a new US customer involved in fibre optics. JHM is finalising a 13.8 acre land acquisition in Batu Kawan in anticipation of more orders (up to 4x current forecast) from the new optic fibre customer in 2022. The JV with MASS Precision to fabricate front-end equipment is prepped to take on its first delivery in July 2021. Maintain MARKET PERFORM with revised TP of RM2.35.

Final financial quarter to see improvement. We anticipate its upcoming 4QFY20 to see growth, QoQ and YoY, as orders from key customers have resumed to pre-Covid-19 levels. Moreover, the 4QFY is a seasonally strong quarter for the group as higher number of car sales typically take place during the year-end festive season due to attractive rebates offered by car manufacturers.

Automotive segment’s recovery momentum will continue in FY21 as the group is eyeing a 25% YoY order growth from its existing customer, thanks to improving car sales. This could potentially increase further as there are 2-3 more new prospects which are still at the qualification phase.

New customer acquired. The group has recently engaged a new US customer who is involved in fibre optics, to fabricate mechanical parts and enclosures. The current orders at hand is estimated to be c.8% of the group’s FY21 revenue and could potentially grow 4x by 2022 upon securing the supply of PCBA and module assembly which will require high-end SMT machines. Given the customer’s commitment to grow along with JHM, the group has announced a 13.8 acres land acquisition in Batu Kawan worth RM27m to accommodate capacity expansion. This would allow the group to take on more orders as the new customer is aggressively looking to diversify their supply chain to Malaysia and JHM is preparing to be their one-stop solution.

JV with MASS Precision will enable the group to move up the supply chain as it ventures into the front-end semiconductor space. The JV will be setting up a c.50k sq ft plant with state-of-the-art robotics production line to produce front-end semiconductor equipment. The group is expected to start delivery of the first shipment in July 2021. Overall, the industrial segment is expected to grow 40-50% YoY.

Maintain FY20E and FY21E NP of RM24.0m and RM49.8m, respectively.

We keep our MARKET PERFORM recommendation with a revised Target Price of RM2.35 (previously RM2.00). Our valuation is based on FY21 PER of 26x (previously 22x), representing +1SD from 3-year mean as we factor in greater interest from institutional clients post its Main Market transfer.

Risks to our call include: (i) reduced orders from key customer, (ii) delay in 5G rollout, and (iii) higher-than-expected input costs.

Source: Kenanga Research - 21 Jan 2021

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