Plenty of upside still for JHM Consolidation

by FARA AISYAH/ pic credit: jhm.net.my

PLENTY of upside remains for microelectronics and light emitting diode (LED) manufacturing company JHM Consolidation Bhd, which recently rallied amid heavy trading volume.

Kenanga Investment Bank Bhd (Kenanga Research) analyst Samuel Tan said the outlook on the manufacturer for the second half of 2020 (2H20) is strong.

“To our positive surprise, the second quarter ended June 30, 2020 (2Q20) will likely sustain quarter-on-quarter (QoQ) despite the Covid-19 impact, followed by stellar 3Q20 to 4Q20,” he wrote in a report yesterday.

“The company is ramping up automotive LED orders by four times the normal capacity on customers’ request, backed by strong rebound in car sales. The group has also secured several new customers, including one which is the biggest auto LED player worldwide with around 30% market share.”

Production for these customers is expected to commence within the next two months, Tan added.

Over the past 30 days, shares of JHM gained as much as 102%. The counter surged 32.2% or RM1.10 to close at RM1.19 on June 16, 2020, adding RM613.36 million to the group’s market capitalisation in just one day.

It has since continued to rise, closing 4.3% or seven sen higher at RM1.68 yesterday for a market capitalisation of RM936.8 million, while the benchmark FTSE Bursa Malaysia KLCI climbed 1.1%.

Kenanga Research also recently organised a conference call with the firm’s top management, which reaffirmed its ‘Outperform’ recommendation and a target price of RM2 for the group.

“Despite rallying 24% after our initiation report (on June 29, 2020), we think the stock is still cheap at financial year ending 2021 (FY21) estimated price-earnings ratio of 17.6 times, a steep but unwarranted discount to UWC Bhd’s over 30 times (based on Bloomberg consensus),” Tan said.

JHM’s industrial division is also expected to see its revenue double in FY20, he added. This will come from a US customer specialising in signal test and measurement equipment, due to aggressive 5G rollout.

For 1Q20, JHM’s net profit slumped 36.95% to RM5.29 million from RM8.39 million last year as a result of lower revenue coupled with unabsorbed overheads during the Movement Control Order (MCO) period.

Quarterly revenue decreased 19.9% to RM48.54 million from RM60.56 million in 1Q19, mainly attributable to softening demand in the automotive segment, raw material supply chain disruption due to a lockdown in China from January 2020 onwards, and the implementation of MCO.

Public Investment Bank Bhd analyst Lee Siao Ping said it’s possible for JHM to breakout from its sideway channel, as the company remains resilient amid market weakness.

“Corresponding relative strength index and moving average convergence divergence indicators remain healthy while trending sideways, with anticipation of continuous improvement in both momentum and trend in the near term,” he said in a recent report.

Should the resistance level of 93 sen be genuinely broken with renewed buying interest, it may continue to lift JHM’s share price higher to subsequent resistance levels of 98 sen and RM1.04.

However, Lee said, failure to hold on to the support level of 84.5 sen may indicate weakness in the share price and hence, a cut-loss signal.

JHM said late last year, it plans to transfer its listing status from the ACE Market of Bursa Malaysia to the Main Market, as it has satisfied the necessary requirements including profit track record, healthy financials and liquidity, and adequate public shareholding spread.

An application to the Securities Commission Malaysia for the proposed transfer will be made within three months, the group had said in a Dec 31 bourse filing.