JHM recorded 1QFY21 CNP of RM3.7m (-67% QoQ; -44% YoY) after adjusting for unrealised forex gain of RM5.3m. The results came in below expectations, representing merely 7% and 8% of our and consensus full-year estimates, respectively. Margins were compressed due to higher cost incurred for new customers while production timeline was deferred due to extended lockdown which will also impact the subsequent 2QFY21. Barring any lockdown extension, the group expects to ramp up the mass production for a new optic fibre customer in 2H 2021. Maintain MARKET PERFORM with a lower Target Price of RM2.00.

Below expectation. JHM recorded 1QFY21 CNP of RM3.7m (-67% QoQ; -44% YoY) after adjusting for unrealised forex gain of RM5.3m. The results came in below expectations, representing merely 7% and 8% of our and consensus full-year estimates, respectively.

Results’ highlight. QoQ, 1QFY21 CNP fell 67% to RM3.7m after adjusting for unrealised forex gain of RM5.3m. Revenue dipped 4.4% to RM72.9m which was unsurprising as the prior quarter is usually a stronger period for the company due to year-end sales in the automotive market. The slower revenue recognition in the automotive segment (- 16%) due to seasonality was cushioned by improved sales in the industrial segment (+23%) which made up 40% of the quarter’s revenue. YoY, 1QFY21 CNP dipped 44% despite a 50% increase in revenue, due unabsorbed cost arising from newly installed facility and equipment pending the qualification stage that has yet to be cleared as the new customers are unable to travel to conduct the necessary audits.

Orders pushed back. While the orders from the new fibre optic customer remains intact, the production ramp up is expected to be deferred again due to the implementation of movement control order (MCO) 3.0 for the entire month of June which limits the group’s workforce to 60%. Product status for new fibre optic customer remains in the prototype stage for now. Barring lockdown extensions by the local authorities, the group expects to commence mass production in 2H 2021. Meanwhile, the automotive segment is expected to see gradual improvement ahead as the 2H is typically stronger. The group has also recently signed a joint venture (JV) with Skywooo Manufacturing Sdn Bhd which will allow JHM to expand its automotive presence in Malaysia as well as the ASEAN region. Under the JV, JHM will be supplying automotive parts relating to audio video navigation system (AVN) and LED lighting.

Trim FY21E/FY22E CNP by 15%/17% to RM42.3m/RM47.0m, to account for higher cost during the extended lockdown and deferred production timeline.

Maintain our MARKET PERFORM call with a lower Target Price of RM2.00 (previously RM2.35) based on FY21E PER of 26x (+1SD to its 3-year mean).

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

Source: Kenanga Research - 23 Jun 2021