JHM’s 1HFY22 results met our forecast but missed market expectation. Its revenue rose 35.5% on stronger demand across all segments but growth in CNP trailed due to higher R&D cost incurred on sample builds for new automotive customers which may only advance to mass production in 2023. We expect the supply-chain challenges JHM is facing to persist (of which we have already reflected in our forecasts). We maintain our forecasts, TP of RM1.30 and MARKET PERFORM call.

Within our expectations. 1HFY22 CNP of RM14.9m (+16.7% YoY) came in within our expectation at 46% of our full-year forecast but disappointed the market at 39% of the full-year consensus estimate.

Results’ highlights. YoY, 1HFY22 revenue increased 35.5% on improved demand from both the automotive segment (+46% YoY) and industrial segment (+18.5%). However, 1HFY22 CNP grew at a slower pace of 16.7% YoY as the group started to incur additional research and development (R&D) expenses on new projects. These R&D expenses are focused on producing sample builds, for new automotive customers secured over the past year, but have yet to move into mass production. As a result, net profit margin dipped 1.2ppts to 7.7%.

Component shortages affecting deliveries. It indicated a challenging environment going forward due to the on-going chip shortages, especially in the automotive industry. The lack of certain critical components at the customer’s end has resulted in delayed model launches, hence pushing back deliveries of JHM’s automotive LED products. That said, we have already reflected these challenges in our forecasts (see our company update on JMH dated 9 Aug 2022).

Forecast. Maintained

We keep our MARKET PERFORM recommendation and Target Price of RM1.30 based on 17.5x FY23F (in line with peers’ forward mean). There is no adjustment to our TP based ESG given on a 3-start rating as appraised by us (see Page 4).

Risks to our call include: (i) persistent supply-chain disruptions, especially in the automotive sector, (ii) delays in the 5G rollout, (iii) escalating input costs, and (iv) a global recession hurting demand for electronic components.

Source: Kenanga Research - 29 Aug 2022