JHM Consolidation’s 1H23 core earnings missed expectations on the industrial segment’s losses and margins compression dragged by higher input costs and product mix.
“While the semiconductor-related business’ recovery pace may be a gradual one, JHM Consolidation’s new automotive customer is expected to contribute significantly in FY24 and current valuation is undemanding, considering the relatively strong automotive orders visibility,” said RHB Research (RHB) in the recent Malaysia Results Review.
1H23 revenue of RM185.5m was largely in line, but core profit of RM3.7m came in at only 13.4% and 12.5% of RHB and Street’s estimates. The deviations were due to prolonged loss-making in the industrial segment amid the semiconductor downturn, coupled with lower product mix margins and higher labour costs.
Core profit of RM1.8m improved YoY from a slight loss of RM0.5m in 2Q22, but was down 8.3% QoQ due to lower product mix margins.
Based on historical trends, 2H of a given year tends to be stronger, but RHB expects the industrial segment to remain challenging this time due to the prolonged global slowdown in the overall semiconductor and E&E sectors, which are affecting the utilisation rate and economies of scale.
“However, we think the automotive segment is expected to be stable before seeing significant growth in FY24. Nonetheless, we are hopeful for timely contributions from new projects post the expansion of two new high-end surface mount technology lines,” said RHB.
The operation set-up for 55%-owned JHM-Dekai Auto Lighting is completed and now under audit before the commencement of a new full-lamp assembly for a national car brand by 3Q23.
An estimated revenue of RM8-10m in FY23 is expected and set to grow by 3-4x in FY24-25. Elsewhere, the hermetic glass seals project remains laborious, causing the margins compression.
“Meanwhile, the plant expansion in Batu Kawan will be further delayed pending commitments from a potential client,” said the research house.
Key risks identified by RHB are such as the lower demand, cost escalations, a stronger RM, and delays in new project executions.
