KUALA LUMPUR: JHM Consolidation Bhd is set to see upbeat earnings once the movement restrictions ease, which would enable the company to quickly ramp up production to meet pent-up demand for automotive parts.
JHM’s production capacity is currently dampened by restrictions whereby only 60% of its workers are allowed to operate.
Despite the current setback, orders for its automotive division remain firm, noted Mercury Securities. The brokerage added that the company is also poised to secure another two to three new customers, which could see a minimal 20% increase in its automotive segment revenue next year.
“JHM is not short of new orders, products and projects. (But) earnings trajectory hinges on execution and the timing of production rollout,” Mercury said in a report initiating coverage on the company.
The research house has a “buy” recommendation on the stock with a target price of RM2.36 based on industry financial year 2022 (FY22) price earnings of 25.7 times and earnings per share of 9.2 sen. The counter was last traded at RM2.19.
JHM is expected to benefit from its recent tie-up with Jiangsu Dekai Auto Parts Co Ltd, which allows it to be involved in the supply of automotive lighting for Proton-Geely’s full-size MPV model, expected to launch at end-2022.
In an earlier report, RHB Research estimated that revenue for the said model could come in at around RM80mil to RM100mil, while total capex required could be RM5mil to RM15mil excluding building costs.
RHB viewed the venture positively as it will propel JHM towards becoming a full-fledged tier-one manufacturer and open up more opportunities for the company to deal directly with automotive original equipment manufacturers.
Additionally, the company’s 40% joint venture with Skywooo Manufacturing Sdn Bhd paves the way for its expansion into the Asean market while broadening its capability in supplying automotive parts other than LED lighting.
The technical collaboration with Jiangsu, along with its new fibre optic manufacturing and joint venture with Mass Precision Inc to produce front-end semiconductor equipment, should bring new earnings dimension to JHM.
Hence, Mercury is forecasting a 31.1% rise in revenue, accompanied by a 65.7% increase in core net profit with a better profit margin for FY22.
“JHM is also a good proxy play for the global 5G infrastructure rollout and the increasing investment in the electric vehicle charging infrastructure,” it added.
The company posted a 70.4% increase in net profit to RM9mil for the first quarter ended March 31, 2021 from RM5.29mil a year ago. Revenue rose 50.1% to RM72.85mil from RM48.54mil previously.
JHM said its outlook remained resilient in spite of the volatile market conditions and the company has kept to its business expansion plans to support new customers from automotive as well as industrial segments.