JHM recorded its best quarterly revenue in 1QFY22 at RM100.0m (+5.5% QoQ; +36% YoY) with CNP of RM9.2m (- 34.1% QoQ; +146.7% YoY) which came in within expectation, representing 24% of both our and consensus full-year estimates, respectively. Net margins shrank from 14.7% to 9.2% on: (i) higher R&D cost for new projects, and (ii) lower volume from the industrial segment which resulted in unabsorbed cost. We deem the results as a sign of good recovery but remain cautious due to on-going supply chain challenges. Maintain MARKET PERFORM with a lower Target Price of RM1.50.

Within expectations. JHM recorded 1QFY22 CNP of RM9.2m (-34.1% QoQ; +146.7% YoY) which came in within expectation, representing 24% of both our and consensus full-year estimates, respectively.

Results’ highlight. QoQ, 1QFY22 revenue inched 5.5% higher to record its highest quarterly revenue of RM100.0m despite shorter working days as the group typically stops production during the Chinese New Year break. However, 1QFY22 fell 34% to RM9.2m on: (i) lower order volume from the industrial segment (-6%) which resulted in unabsorbed cost, and (ii) higher research and development cost as the group begin working on a few new products which requires new equipment and producing prototype samples for qualification. YoY, 1QFY22 revenue saw a significant increase of 36.4% as loading volume from both the automotive (+53%) and industrial (+12%) segments remained robust. CNP leapt 146.7% on improved margins as the group saw a recovery in its production efficiencies with the relaxation of Covid-19 SOPs.

Keeping up the momentum. Moving into 2QFY22, JHM continues to experience healthy order volume from its key customers in the automotive space. While certain components faced logistical challenges due to the on-going Shanghai lockdown, JHM has managed to alleviate the issue via alternative shipping options with customers willing to share higher shipping cost. Meanwhile, management guided that the lower contribution from the industrial segment was a result of temporary hiccup on customer’s end which will be resolved in 2HFY22 as order forecast remains intact. Overall, while the reported 1QFY22 earnings showed an encouraging start for FY22, we remain cautious given that the group is still on a recovery path and its new products have just begun the prototyping stage which could be susceptible to delays from various possibilities such as unsatisfactory production yield rates or too many designs iteration from customer’s end. Risks such as these do not bode well with the current unforgiving market sentiment where investors have a low risk appetite.

Maintain FY22E CNP of RM37.8m and FY23E CNP of RM43.8m, representing a growth of 38.6% and 15.8%, respectively.

Maintain MARKET PERFORM with a lower Target Price of RM1.50 (previously RM1.80) based on a lower PER of 22x (previously 26x) on FY22E EPS, in line with 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 - 31 May 2022