The firm should benefit from the recovery trend in the automotive sector and new major automotive customers

by SHAFIQQUL ALIFF / Pic by TMR GRAPHIC

JHM Consolidation Bhd is expected to record stronger numbers in the quarters ahead as robust orders and margins are expected to widen due to economies of scale.

Hong Leong Investment Bhd research analyst Lee Meng Horng noted that JHM should benefit from the recovery trend in the automotive sector and growth prospects on new major automotive customers, and projects following the expansion of its client portfolio to include major US-based chipmakers.

“We continue to like this stock and our outlook remains positive, on growth catalysts stemming from new customers/projects and expansion versus the laggard valuation.

The investment bank has a ‘Buy’ call on Penang based JHM with a target price of RM2.74, based on price earnings multiple of 27 times its financial year 2022 (FY22).

Last Wednesday, JHM entered into a technical collaboration agreement with Jiangsu Dekai Auto Parts Co Ltd (Dekai) to create an efficient and effective supply chain to support automotive lighting to Proton Holdings Bhd-Zhejiang Geely Holding Group Co Ltd companies located in Malaysia.

JHM, in its bourse filing, noted that the collaboration will propel the group into a Tier 1 player that will enable it to deal directly with automotive original equipment manufacturers.

Under the collaboration, JHM will ensure the manufacturing facility is up to the required advanced technology and quality to support its customers and provide business development and marketing support especially to North American countries.

Jiangsu Dekai will leverage on JHM Malaysian firm’s manufacturing expertise to further expand both companies’ market shares in

Malaysia and the Asean region as a Tier 1 player, and provide the technical knowledge and expertise to build the complete lamp products according to customers’ specifications and requirements.

Lee noted that JHM’s first quarter of 2021 (1Q21) performance weekend on a seasonal factor with earnings of RM6.7 million (+403% year-on-year [YoY]) rebounded from a low base, on a supply chain disruption in 1Q20.

Lee said the sustained revenue growth (+50.1% YoY) will continue to be supported by robust growth in overall sales orders and contributions from new projects/customers.

“Its industrial segment’s narrower margin for 1Q21 was distorted by the consolidation of the loss-making “others” segment, coupled with sunk costs for new product introductions,” the analyst noted in a report last week.

JHM posted a net profit of RM9.1 million in the 1Q ended March 31, 2021, from a net loss of RM5.29 million made a year earlier.

In a filing to Bursa Malaysia last week, the company noted that the revenue for the quarter increased to RM72.85 million from RM48.54 million previously due to higher sales orders from existing automotive and industrial key customers.

JHM added that barring unforeseen circumstances, the group prospects in the current FY21, remains positive.