LED lighting modules expert. Listed in July 2006, JHM is one of the main Electronics Manufacturing Services (EMS) providers in providing one-stop solutions for LED Lighting modules. It is mainly engaged in the manufacturing and assembly of surface mount technology and PCBA assembly for LED lighting modules. Its LED lighting modules are mainly catered for the well-known Tier-1 automotive manufacturers. The automotive segment is the largest revenue contributor to the Group, contributing approximately 62% to FY20 revenue while the industrial segment and others contributed 37% and 1%, respectively.

Risk-reward profile turns attractive. Being an EMS provider for automotive players, JHM is deemed to be a good proxy to ride on the sector’s recovery. Although the global chip shortage continues to put a cap on global car production, the orders from JHM’s existing automotive customers remain robust, with global automotive LED lighting market expected to grow at a CAGR of 12.9% in 2020-2027, based on Precedence Research’s forecast. On the other hand, its industrial segment which is engaged in 5G signal test modules and test solutions for electric vehicle charging applications is another key earnings driver. Despite the promising outlook, JHM is currently trading at an undemanding valuation of 23.0x FY22 P/E (49% and 28% discount against D&O and KLCITEC FY22 P/E of 45.3x and 32x, respectively).

Better 4Q and beyond To recap, JHM’s 9MFY21 core earnings of RM13.1m registered a 5.1% decline YoY, primarily affected by the implementation of Phase 1 restrictions (only allowed to operate at 60% capacity). Nevertheless, we opine the worst is likely over and expect JHM to perform better in 4Q21 and 2022, underpinned by (1) ramp-up in automotive orders and fulfillment of backlogged orders; (2) production returned back to the optimal levels since Sept; (3) new automotive projects that is expected to contribute by FY22.

Grossly oversold. Technically, JHM is grossly oversold and is poised for a technical rebound, supported by upticks in technical indicators. A successful rebound above RM1.81 will spur the prices toward RM1.90- 2.00 levels. Cut lost at RM1.59.

Source: Hong Leong Investment Bank Research - 7 Dec 2021