As pre-empted by the group earlier, JHM’s 3QFY21 performance suffered from the extended lockdown with CNP of RM3.4m (-47% QoQ; -57% YoY), bringing 9MFY21 CNP to RM13.4m (-0.5% YoY). The results came in slightly below expectations, representing 54%/50% of our/consensus’ fullyear estimates. Moving into 4Q, we are sanguine for a meaningful recovery as orders remained intact and JHM has been able to operate at 100% workforce, which is timely as the group enters its seasonally stronger quarter. Maintain MARKET PERFORM with an adjusted Target Price of RM1.80.

Slightly below expectations. JHM recorded 3QFY21 CNP of RM3.4m (-47% QoQ; -57% YoY), bringing 9MFY21 CNP to RM13.4m (-0.5% YoY) after adjusting for unrealised forex gain and land sale worth RM8.2m. The results came in slightly below expectations, representing 54% and 50% of our and consensus full-year estimates, respectively.

Results’ highlight. QoQ, 3QFY21 CNP fell 47% to RM3.4m on a 15% decline in revenue to RM59.2m. The larger quantum of decline in CNP was due to a RM3.6m profit guarantee recognised earlier in 2QFY21 from its subsidiary, Mace Instrumentation Sdn Bhd. As pre-empted by the management, the group still suffered from lower utilisation rate and higher unabsorbed cost during the period as its manufacturing facilities (mainly in Kedah) faced sporadic lockdowns due to Covid-19 cases in the area. This discrepancy in earnings compared with Penang counterparts can be explained with the fact that Penang was three months ahead of Kedah in the National Recovery Plan progression. YoY, 3QFY21 revenue fell 24% while CNP sank 57% on margin compression owing to higher cost incurred for Covid-19 SOP implementation. Cumulatively, 9MFY21 revenue increased 16% to RM201.8m on higher orders from the automotive and industrial segments while CNP remained flat at RM13.4m.

All eyes on 4Q. With the worst over, we are hopeful for a meaningful recovery in the upcoming 4Q given that JHM now operates at 100% capacity since mid-Sept, which is timely as the group enters its seasonally stronger quarter. In addition, there was no order cancellation and certain customers are agreeable in sharing higher material cost as well as logistical cost. Barring any further uncontrollable circumstances, JHM should be able to see decent margin recovery in the subsequent quarters.

Trim FY21E/FY22E CNP by 6%/7% to RM23.3m/RM38.0m, to account for the unabsorbed cost during the extended lockdown and deferred production timeline.

Maintain our MARKET PERFORM call with a lower Target Price of RM1.80 (previously RM1.90) based on 26x FY22E (+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 - 29 Nov 2021