JHM posted 2QFY21 CNP of RM6.3m (+69% QoQ; +56% YoY), bringing 1HFY21 CNP to RM10.0m (+80% YoY) after adjusting for unrealised forex gain and land sale worth RM8.3m. The results came in below expectations, representing only 24% of both our and consensus full-year estimates. We expect the negative impact of MCO 3.0 to linger in 3QFY21 due to multiple lockdowns. On the bright side, orders have remained intact and JHM has been able to operate at 100% workforce since Sept, fuelling expectation for 4QFY21 which is seasonally its best quarter. Maintain MARKET PERFORM and lower Target Price of RM1.90.

Below expectation. JHM recorded 2QFY21 CNP of RM6.3m (+69% QoQ; +56% YoY), bringing 1HFY21 CNP to RM10.0m (+80% YoY) after adjusting for unrealised forex gain and land sale worth RM8.3m. The results came in below expectations, representing only 24% each of our and consensus full-year estimates.

Results’ highlight. QoQ, 2QFY21 CNP jumped 69% to RM6.3m despite revenue inching 5.5% lower to RM69.3m thanks to the recognition of RM3.6m profit guarantee shortfall from its subsidiary, Mace Instrumentation Sdn Bhd. The slower revenue recognition was a result of a 16% decline in the industrial segment, offsetting the 2% increase from the automotive segment which made up 64% of the group’s revenue.

YoY, 2QFY21 CNP rose 56% on the back of a 44% jump in revenue. Cumulatively, 1HFY21 CNP surged 80% to RM10.0m while revenue rose 48% to RM142.6m.

Hinging on the final quarter. While the group posted improved financials, its performance is still below our expectation as we believe the group could have done better when compared to local peers. Looking into 3QFY21, we believe the impact of MCO 3.0 will linger as northern Malaysia saw worsening Covid-19 cases during the period, especially in Kedah where the group is operating. This has caused further lockdowns, resulting in unabsorbed costs arising from newly installed facilities and equipment pending the qualification stage that has yet to be cleared as the new customers were unable to travel to conduct the necessary audits. On a positive note, the group did not experience any cancellation with orders remaining intact. With a fully vaccinated workforce, the group has been operating at 100% capacity since Sept, fuelling expectation for the 4Q which is typically its best quarter.

Reduced FY21E/FY22E CNP by 42%/13% to RM27.5m/RM40.8m, to account for higher cost during the extended lockdown and deferred production timeline.

Maintain our MARKET PERFORM call with a lower Target Price of RM1.90. We roll-forward our earnings base to FY22E, pegged to an unchanged 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 Sept 2021