We expect its subsequent quarter to post YoY growth on the back of order resumption to pre-Covid-19 levels. This is driven by higher car sales translating into increased demand for automotive LED while the industrial segment is poised to benefit from more 5G product orders as well as fresh orders from a newly engaged US customer involved in optic fibre. It is seeking new land for expansion as the new customer’s order could potentially ramp up by 4x from current level. Maintain MARKET PERFORM with unchanged TP of RM2.35.

Subsequent quarter to see YoY growth. We anticipate its upcoming 1QFY21 to see better growth on a YoY basis, as existing customers have resumed order forecasts to pre-Covid-19 levels. Demand from the automotive led segment continues to remain strong, in tandem with rise in global automotive sales due to pent-up demand from heightened consumer spending. In line with management’s optimism, we expect the automotive segment to see 25% YoY order growth from its existing customers alone. This could potentially increase further as there are 2-3 more new prospects which are still at the qualification phase. The group has also recently passed the virtual audit by a new customer (with sizable market share) which we have yet to factor in any contribution.

Industrial segment updates. JHM continues to see encouraging orders from its existing customers as well as 5G products for the industrial segment which could translate into a conservative 20% growth for the segment. This is excluding the potential contribution from its newly engaged US customer that is involved in fibre optics, to fabricate mechanical parts and enclosures. The group has already received approval for several projects from this new US customer and the current orders at hand is estimated to be c.7% of the group’s FY21 revenue without taking into account a few more products that are still in the qualification phase. All of the current orders will be supported by its existing plant. Meanwhile, JHM is also in the midst of securing a new land as this new US customer is aggressively looking to diversify their supply chain to Malaysia and JHM is preparing to be their one-stop solution. The contribution from this customer could potentially grow up to 4x by 2022 upon securing the supply of PCBA and module assembly which will require highend SMT machines.

The JV with MASS Precision has secured a 66k sq ft plant with state-ofthe-art robotics production line to produce front-end semiconductor equipment. The group is expected to start delivery of the first shipment in July 2021.

Maintain FY21E and FY22E NPs of RM49.8m and RM56.7m, respectively.

We keep our MARKET PERFORM recommendation with an unchanged Target Price of RM2.35. Our valuation is based on FY21E PER of 26x representing +1SD from 3-year mean.

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 - 5 Mar 2021