JHM looks to new orders for growth as operations resume in full

by NURUL SUHAIDI / graphic by TMR

JHM Consolidation Bhd’s growth is set to be fuelled by new projects and expansions with the on-boarding of prominent client portfolios.

RHB Research analyst Lee Meng Horng stated that the automotive and industrial companies are now at full operating capacity after the temporary setbacks of the past three months.

RHB maintained its ‘Buy’ rating for JHM Consolidation with a new target price (TP) of RM2.39, which is almost 33% above its current market price of RM1.80 at close yesterday.

The Penang based group’s 1H21 core earnings of RM13 million fell short of analysts’ expectations due to lower than expected top line growth and margins, as lockdown measures and Covid-19 cases affected overall production.

This was coupled with underutilised fixed costs, and additional costs on depreciation, materials, and staff for new projects.

“While 3Q21 may still feel the impact from the third Movement Control Order (MCO 3.0), production returned to full force from September.

“We understand orders from existing customers encountered some certain material shortages and shipment delays (no cancellations) — this has been alleviated via close liaisons with customers/ suppliers.

“For new customers, JHM Consolidation submitted US$65 million (RM271.7 million) worth of request for quotations and is optimistic of securing at least 20%-30% of projects to be supported under the current facilities,” Lee noted.

He added that JHM Consolidated’s joint venture (JV) with Skywooo Manufacturing Sdn Bhd is currently generating a month’s trading revenue of RM2 million, while the JV with Jiangsu Dekai Auto Parts Co Ltd will see Phase 1 of completed lamp builts being assembled in China while it waits for the readiness of its full local assembly plant by 2H22.

Its industrial sector segment’s production is now at full steam to fulfil the current outstanding orderbook of RM40 million.

“Among the progress for new projects, RM800,000 worth of orders for enclosures for electric vehicle applications have been delivered and subsequent orders are in discussion.

“A RM14 million open order for a 5G test equipment project has also been secured. As for the new US-based semiconductor customer, certain parts have been qualified and will be in mass production in 4Q, with a potential blanket order in FY22,” he added.

JHM is also in talks with a potential new Dutch customer to produce urgent mechanical parts for medical equipment using the underutilised 5-axis machines. Mace Hermetic has secured US and Italian customers, with sample parts are undergoing client qualification.

“Total capital expenditure of RM16m is for machinery and equipment in FY21, while up to RM100m is slated for the next two years for the new plant expansion in Batu Kawan,” said Lee.

RHB Research cuts JHM’s financial year 2021 forecast (FY21F)-FY22F earnings by 14.5% and 3% respectively to account for the extended MCO 3.0 impact in 3Q, as the company’s plant was still underutilised at 60% capacity until end August, resulting in the lower TP of RMR2.39.

“Our TP is based on an unchanged 27x FY22F P/E (+2SD from the five-year mean) and 4% ESG premium,” the RHB report noted.