JHM recorded 4QFY21 CNP of RM13.9m (-315% QoQ; +25% YoY), bringing FY21 CNP to RM27.3m (+11% YoY) after adjusting for unrealised forex gain and land sale worth RM7.2m. FY21 earnings came in above expectations, representing 117%/115% of our/consensus estimates, respectively. We anticipate the recovery momentum to continue in FY22 as international borders are beginning to reopen, allowing much of its projects to progress from the prototyping stage into mass production. Maintain MARKET PERFORM and Target Price of RM1.80.

Above expectations. JHM recorded 4QFY21 CNP of RM13.9m (-315% QoQ; +25% YoY), bringing FY21 CNP to RM27.3m (+11% YoY) after adjusting for unrealised forex gain and land sale worth RM7.2m. The earnings came in above expectations, representing 117% and 115% of our and consensus full-year estimates, respectively.

Results’ highlight. QoQ, 4QFY21 CNP leapt 315% to RM13.9m on a 60% jump in revenue to RM94.8m as the group was able to deploy its full workforce to capitalise on the seasonal year-end momentum as well as picking up on the backlogs from the prior quarter. YoY, 4QFY21 revenue saw a healthy increase of 24% on the back of higher loading volume from both the automotive (+16%) and industrial (+46%) segments. CNP rose in proportion, thanks to the absence of unabsorbed cost as plant utilisation was at optimal levels with the easing of lockdown measures. Cumulatively, FY21 revenue increased 18% to RM296.6m while CNP climbed 11% to RM27.3m.

Starting FY22 afresh. We anticipate the recovery momentum to continue in FY22 as international borders are beginning to reopen, allowing for better workflow between JHM and its prospective customers. This is crucial as many of the group’s progress on new projects are still stuck in the RFQ and prototyping stage as customers are unable to physically audit the production quality. Thankfully, the group continues to receive strong orders from existing customers, especially for automotive headlamp and tail-lamp given the prevailing chip crunch in the automotive sector prompting end-customers to secure advance supply to avoid production disruption for their new models. JHM is also expanding its facility with a new plant in Batu Kawan (with 350k sq ft production space) which is slated to commence operations in FY23 for the growing automotive orders as well as the industrial segment.

Maintain FY22E CNP of RM37.8m and introduce FY23E CNP of RM43.8m, representing a growth of 38.6% and 15.8% respectively. We kept our FY22E CNP unchanged despite a better-than-expected 4QFY21 owing to unfavourable sentiment in the technology sector because of the (i) rising interest rate environment and (ii) geopolitical tensions in Europe.

Maintain MARKET PERFORM and Target Price of RM1.80 based on unchanged 26x FY22E (+0.5SD to its 5-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 - 28 Feb 2022