JHM 2Q earnings fall short of analysts’ forecasts

The firm faces slowdown in orders, delays in new project contribution and margin compression due to the impact on MCO 

by S BIRRUNTHA / graphic by TMR

JHM Consolidation Bhd’s financial year 2021, 2022 and 2023 earnings forecasts have been slashed by 14.5%, 11.1% and 5.5% respectively to account for Movement Control Order (MCO) impact, namely a slowdown in orders, delays in new project contribution and margin compression. 

RHB Investment Bank Bhd (RHB Research) analyst Lee Meng Horng stated that JHM’s earnings in the first half of the year (1H21) only covered 30% of the research house’s and the consensus expectations, despite a strong rebound. 

“While we saw JHM’s revenue recover 45% year-on-year (YoY) to RM69.7 million in the second quarter of 2021 (2Q21), overall production outputs were affected, as only a maximum of 60% of the workforce was allowed during the MCO. 

“Its 2Q21 margins also continued to be undermined by additional depreciation costs from the recent upgrades for plant and machinery, material sunk costs, and extra staff for new projects,” he wrote in a note yesterday. 

The broker has maintained its ‘Buy’ call on JHM but with a lower target price of RM2.46 from RM2.67 previously after the group’s first-half of 2021 (1H21) earnings fell short of expectations. The counter fell seven sen to RM1.96 yesterday. 

Lee anticipates some weakness in KHM’s existing automotive orders in 2H21 due to global capacity constraints and component shortages. 

“The higher material holding costs, in addition to new projects’ sunk costs, may continue to undermine bottomline growth until meaningful contribution from new projects kick in from 4Q. 

“Margins should improve when operations revert to optimal levels, post acceleration in group-wide inoculation rates in August or September,” he added. 

Lee expects JHM’s operations to normalise in the 4Q, given the high vaccination rate, fulfilment of order backlogs and gradual contribution from new customers, projects and expansions. 

Despite short-term earnings drawbacks due to MCO’s impact and global chip shortages, the overall growth prospects, automotive recovery and electrification trends, as well as business diversification and expansion plans of JHM remain intact with the onboarding of prominent client portfolios. 

JHM posted a net profit of RM9.32 million in 2Q21 compared to RM2.73 million posted in 2Q20. 

Revenue for the quarter increased to RM69.74 million compared to RM48.13 million posted in the same period last year. 

The group stated the financial performance was also attributed to higher sales volume in the automotive segment and the increase in profit after tax was in tandem with the increase in revenue, as well as higher other operating income. 

Moving forward, JHM said market conditions are expected to be volatile due to concerns over uncertainties in global economic recovery from the impact of Covid-19 pandemic. 

Despite this, it’s outlook remains resilient and is continuing with the business expansion plans to support new customers from automotive, as well as industrial segments. 

Barring any unforeseen circumstances, the JHM board believes the group’s prospects in the current financial year ending Dec 31, 2021 (FY21) remains positive.