2QFY20 CNP of RM2.7m (-48% QoQ; -62% YoY) brings 1HFY20 CNP to RM8.0m (-49% YoY). The decline is expected as the group had cautioned about the adverse impact of the MCO. While only making up 25% and 27% of our and consensus estimates, we deem this to be within expectation as we anticipate a stronger 2H. Having all capacity back online as well as new customers on board in both the automotive and industrial segment, we expect stellar 3Q and 4Q. Maintain OUTPERFORM and Target Price of RM2.00.

Within expectation. The group recorded 2QFY20 CNP of RM2.7m (- 48% QoQ; -62% YoY), bringing 1HFY20 CNP to RM8.0m (-49% YoY). The decline was largely expected as the group had cautioned about the negative impact of the movement control order (MCO). While only making up 25% and 27% of our and consensus estimates, we deem this to be within expectation as we anticipate a stronger 2H that to meet our full-year CNP forecast of RM29.9m.

Results’ highlight. QoQ, 2QFY20 revenue only inched 1% lower to RM48.1m as the group managed to sustain considerably well despite a challenging period. However, the larger quantum of decline in CNP was largely due to higher expenses incurred during the movement control order (MCO) period. YoY, 1HFY20 revenue fell 21% to RM96.7m as the automotive segment (-34% YoY) was negatively impacted from the lockdown in the US. On the bright side, the industrial segment managed to edge 5.7% higher as the group secured a new customer who is involved in the forefront of 5G development.

Sharp recovery in 2H. With the largely expected weak 1H behind them, we are looking forward to a sharp recovery in 2HFY20 with stellar 3Q and 4Q. The company is ramping up automotive LED orders by 4x of normal capacity on customers’ request, backed by strong rebound in car sales. Furthermore, the group has also secured several new customers including one which is the biggest auto LED player worldwide with ~30% market share. In the industrial division, we also expect doubling of revenue from a US customer (specialising in signal test and measurement equipment) for FY20, thanks to aggressive 5G rollout.

We keep our earnings forecasts for FY20-21E in anticipation of a better 2H that will make up for the lacklustre 1H.

Maintain OUTPERFORM with an unchanged Target Price of RM2.00 based on FY21E PER of 22.2x (representing +1SD above its 3-year mean). At current level, JHM is trading at FY21E PER of 18x, a steep but unwarranted discount to its peer that is trading at over 30x.

Risks to our call include: (i) lower-than-expected sales, (ii) loss of orders from its key customers, and (iii) adverse currency translations.

Source: Kenanga Research - 27 Aug 2020