Initiation

29 June 2020

JHM Consolidation OUTPERFORM

Price : RM1.30
5G to Unlock Next Phase of Growth Target Price : RM2.00
By Samuel Tan l samueltan@kenanga.com.my

BUY with an upside of 54%; 5G being the mainstay of our investment Share Price Performance
thesis. We initiate coverage on JHM Consolidation (JHM) with an
OUTPERFORM recommendation and a target price of RM2.00, which is
based on FY21E PER of 22.2x, representing +1SD above its 3-year mean
considering its exciting prospects from 5G, electric vehicle (EV) charging
stations, horticulture venture and new automotive customers. Its aerospace
venture also offers enormous potential but will only see significant
contribution in 2022 and beyond. Furthermore, the transfer to Bursa
Malaysia’s Main Board will attract greater interest from institutional funds.
The stock is currently trading at FY21E PE of 14.5x; a steep but unwarranted
discount to UWC’s 26x (based on Bloomberg consensus).
Still a laggard as aerospace discount overplayed. Despite the recent KLCI 1,5488.1
share price rally, JHM remains one of the biggest laggards in the technology YTD KLCI chg -6.3%
sector (see exhibit 10) as investors weighed the impact from the ailing global YTD stock price chg -22.2%
automotive industry as well as discounting JHM’s aerospace venture angle.
However, we think these factors have been very much misconstrued. Firstly, Stock Information
notwithstanding the Covid-19 impact, JHM’s automotive segment is Shariah Compliant Yes
expected to register a strong 2HFY20 as (i) it recently secured several new Bloomberg Ticker JHMC MK Equity
customers including a car manufacturer; (ii) its LED modules have Market Cap (RM m) 734.8
penetrated commercial vehicles market (previously only passenger Shares Outstanding 556.7
vehicles), (iii) 2HCY19 was relatively low base due to the “2019 General 52-week range (H) 1.78
52-week range (L) 0.50
Motors strike”, (iv) global automotive sales are rebounding, and (v) LED
3-mth avg daily vol: 12,569,752
content in automobiles will continue to grow. Secondly, the aerospace Free Float 55%
segment only contributes c. 1% to group sales and we gather that global Beta 1.6
aircraft orders in general are not cancelled but only deferred.
Major Shareholders
Ramping up orders for 5G and EV charging station modules. In the
Tan Kim Seng 33.6%
industrial division (c.33% of revenue), we expect a ramp-up in orders from
Noble Matters Sdn Bhd 13.6%
5G signal test modules and EV charging station-related components. This CIMB Group Holdings Bhd 8.2%
renders JHM a good proxy for the global 5G infrastructure rollout and the
growing prevalence of EV charging stations. Besides these, JHM has also Summary Earnings Table
started supplying parts and modules used in a new horticulture project with FYE Dec (RM m) 2019A 2020E 2021E
an estimated contribution of c.USD1m in FY20E and is likely to increase Turnover 256.8 272.0 339.2
going forward. Overall, we project this division to grow at an exciting rate of EBITDA 51.7 54.3 79.3
24-36% in FY20E/FY21E. PBT 39.6 41.1 65.0
Net Profit (NP) 30.5 31.6 49.9
Firing on all cylinders for 2HFY20. After the latest quarter results Consensus (NP) n.a 30.0 41.9
(1QFY20), we believe that the worst is over for JHM as the group has Erng Revision n.a 0% 0%
returned to full workforce since end-April. We gather that there was no order EPS (sen) 5.5 5.7 9.0
cut by customers, and in fact, a huge backlog has to be fulfilled by July. From EPS growth (%) -14.2 3.6 58.1
the current bookings (3-6 months ahead), which is underpinned by pent-up NDPS (sen) 1.5 1.5 1.5
demand orders of automotive LED modules and 5G modules, we believe BVPS (RM) 0.36 0.43 0.51
2HFY20 performance is likely to come back with a vengeance. Price/BV (x) 3.6 3.0 2.6
PER (x) 24.1 22.9 14.5
Forecast FY20E and FY21E NP of RM31.6m and RM49.9m representing Gearing (x) 0.3 0.2 0.2
growth of 3.6% and 58.2%, respectively. ROA (%) 10.0 9.6 13.2
ROE (%) 15.1 13.1 17.7
Initiate with an OUTPERFORM recommendation and a Target Price of Dividend Yield (%) 1.2 1.2 1.2
RM2.00 based on FY21 PER of 22.2x (representing +1SD above its 3-year
mean). At current level, JHM is trading at FY21E PER of 14.5x; a steep but
unwarranted discount to UWC’s 26x.
Risks to our call include: (i) less aggressive orders from its key customer
which translates to lower-than-expected sales, (ii) delay in 5G rollout, and
(iii) higher-than-expected input costs.

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150% plant expansion for new prospects driven by 5G and electric vehicles
To ride on the multi-year growth potential from 5G rollout, JHM has started working with a US company that is in the forefront of 5G
development, specialising in signal test and measurement. The group is tasked with enclosure manufacturing and PCBA supply for
5G wireless test platforms that are used by the likes of Huawei, Ericson and Nokia which are the top three players that are shaping
the 5G standard.
The US customer has also requested for dedicated floor space to incorporate more processes and products within JHM’s facility in
order to shorten lead time. JHM, under its industrial division (Mace Instrumentation), is expanding its existing 80k sq ft plant by
150% to 200k sq ft. The expansion is slated to be completed by July 2020 and will be catered for new products relating to electric
vehicle (EV) charging stations.
The group will be manufacturing the charging discovery system (CDS) module that are used to ensure that infrastructure providers
for EV charging station and car manufacturers conform to the same charging protocol. CDS is able to emulate the properties of both
electric vehicle supply equipment (EVSE) and EV, allowing for standalone bi-directional testing. Furthermore, it also acts as a
middle-man test for inter-operability when both EVSE and EV are connected to it. This means that both EV infrastructure provider
and car manufacturers are able to work on a standardised charging protocol which allows for faster rollout and market availability.
Contribution from this US customer is currently at RM600k/mth and is expected to only increase from here on with bigger
significance in FY21E. A continuation of such momentum will most likely propel this US customer to become the third largest
contributor to JHM’s revenue.

Exhibit 1: Charging Discovery System (CDS)

Source: Volta

Global automotive sales rebound

Based on the latest data, US automotive sales growth has improved from the low of -88% YoY in April to -80% YoY in May, showing
early signs of bottoming out as authorities are easing lockdown restrictions in the US, allowing car manufacturers to gradually ramp
up production. The group indicated that it did not experience any cancellation from customers; in fact it has received encouraging
order forecast from key automotive LED customers and even secured a new customer which is directly involved in car
manufacturing.
With more than 90% of its automotive revenue centred on exterior LEDs, the group is working to grow its presence in the interior
space. This will allow the group to be more versatile in terms of product offering and capabilities. Furthermore, it is also expanding
into commercial vehicles which we expect to see a pickup in sales as logistics companies may increase fleet size to cater for the
increased traffic from e-commerce. Such trend is seen in China where commercial vehicles used by state-owned transportation,
logistics and construction companies surged in demand as government are offering incentives coupled with increased investment in
infrastructure projects to revive the economy. Given that China has flattened the curve of the Covid-19 spread, we believe its
automotive sales serves as a leading indicator and we expect the US market to follow suit.
Exhibit 2a: US automotive sales (units) Exhibit 2b: US automotive sales (YoY growth)

Source: bea.gov

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Exhibit 3a: China automotive sales (units) Exhibit 3b: China automotive sales (YoY growth)

Source: CAAM

Incentives such as zero-percent financing up to 7 years coupled with rebates are being offered to encourage more buying demand in
the US. Car manufactures are also moving towards more online sales to make up for lower traffic in physical dealership. This has in
turn spurred more purchases in the month of May, which we believe to be the beginning of a V-shape recovery.

Continuous advancement in automotive LED to provide visibility

The continuous advancement in the automotive lighting space to improve safety and aesthetics serves as a boon for JHM as it
continues to work with key customers on new product offerings. We have seen the adoption of LED over halogen bulbs among
automotive manufacturers. Going forward, the evolution of LEDs which allow for dynamic lighting system will increase LED count per
vehicles as well as the complexity of the light module manufacturing process. This will in turn benefit JHM which has vast know-how
in automotive lighting module manufacturing.
Based on our channel checks, we also observed more car manufacturers exploring the concept of interactive LED which involves
the projection of light onto the road for better visibility from afar. This includes car indicator light projections that can harmlessly mark
out space in an area where the car is planning to move into. We have also seen some concepts of forward path projections that
could help both drivers approaching each other in low-light and narrow road situations. Looking at the various application and
advancement of lighting in the automotive space, we are confident that JHM will continue to see positive growth from new product
introductions.

Exhibit 4: Interactive LED

Source:Carscoops

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Aerospace segment to provide the next lift

JHM had on March 2019 signed a memorandum of understanding (MoU) with Universal Alloy Corp Europe (UACE) to mark its first
step into the aerospace industry. Under the MoU, UACE will outsource metal machining and sub-assembling of aerospace products
to JHM. UACE will also provide technical and manufacturing capabilities as and when needed to JHM. Both parties will collaborate
to create an efficient and effective supply chain for machined sub-assembled aerospace components and products.
At present, aerospace contribution to the group’s revenue is still negligible (at c.1%). The current jobs awarded by UACE involves
the manufacturing of 72 machined parts which yield low margin as piece part manufacturing is considered to be a very competitive
market with more than 20,000 players involved.
However, UACE recognised JHM’s outstanding quality and capability and is currently in talks to pass on a secondary process
(surface treatment and non-destructive testing) with higher value-add and a revenue potential of RM100m-RM160m per year (as big
as the automotive segment that contributes 66% to revenue). There are approximately 300 vendors globally which are approved for
this surface treatment process.
While the scheduled meeting between JHM and UACE early this year was cancelled due to travel restrictions, the group is actively
in contact with UACE via web conferencing to iron out the master-service agreement (MSA). Management indicated that UACE still
intends to hand over the surface treatment business to JHM and the signing of MSA will be concluded by end 3QFY20.

Exhibit 5: Typical view of an anodizing plant

Source: Galvatek

With most of the aircraft backlogs coming from Asia, UACE needed a solution to reduce lead time. Upon signing of the MSA, the
group will be able to provide surface treatment service which will spare UACE the trip of shipping back products to Romania for
surface treatment. We expect to see a very gradual ramp-up in FY21E with more meaningful contribution to take place in FY22E-
FY23E. Meanwhile, the group is also in preliminary discussion with another player that is 3-4x larger than UACE for potential
collaboration. There are only five other players in the world like UACE that are in the approved vendor list for aero-structure
manufacturing. Being offered the opportunity to venture into the aerospace segment speaks a great deal about JHM’s technical
capabilities and quality control.
To accommodate the large sized components, the surface treatment dipping pool has to be roughly 6 meters in width and 20 meters
in length. JHM has 9 acres of vacant land in Sungai Petani, Kedah which will be purposed for the anodizing plant. While the capex
for the aerospace segment has yet to be finalised, we expect an amount around RM50m-RM60m which will be carried out in
phases.
UACE has three manufacturing facilities in the U.S. and Europe which specialise in engineered product, including cast billet, hard
alloy extrusion, and finished component. UACE has an in-house R&D group which can develop advanced alloys customised for
specific applications. Leveraging on its strength in the aerospace aluminium extrusion market, UACE established a forward-
integrated manufacturing plant in Romania which allows them to meet current market demands efficiency and provide value to end
customers by integrating a full range of capability such as billet casting, extrusion, machining, surface treatment, kitting, and
assembly.

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Resumption of tourism
Share price of aviation and airplane manufacturers has recently rebounded sharply from the lows on expectation of pent-up demand
post Covid-19, spurred by the resumption of tourism. Local authorities globally are also providing incentives such as subsidised
hotels, restaurants, transport and attractions to resuscitate the tourism industry. Updated schedules by Diio also indicated that that
capacity for international routes has come off the bottom and is rising gradually, albeit slower than domestic traffic.
As of May 2020, backlogs of aircraft manufacturers Airbus and Boeing shows 7,621 and 5,301 units respectively. While there is
concern of order cancellation by airlines, our channel checks indicated that it may most likely result in order deferment instead of
cancellation. Based on 2019 production level, the number of Airbus and Boeing aircrafts to be built and delivered represents visibility
of 8.8 years and 6.6 years, respectively.
There is no better time for JHM to take the first leap into this segment. Having an early exposure into the industry when it is at its
bottom means JHM will be able to ride the entire recovery rally, providing another wave of multi-year growth.

Exhibit 6a: Airline International Seats (YoY Change %) Exhibit 6b: Aircraft backlog

Source: Forecastinternational, Diio, Bloomberg

Horticulture
Thanks to JHM’s proficiency in LEDs, the group together with the support of the Singaporean government have collaborated on a
horticulture project. The project is currently in its infancy and is estimated to contribute c.USD1m to FY20E sales. While contribution
is small, we believe that the prospects could be bright over the long run as horticulture will likely replace open farming in time to
come.
Horticulture helps to combat the inevitable problems of open farming, such as deteriorating climate and scarce land which results in
undesirable quality. With a controlled atmosphere coupled with LEDs that emulate the properties of sunlight, horticulture will allow
for crops to be produced with consistent quality and more efficient use of natural resources. This in turn contributes to the upward
trends in sustainability and green energy.

Exhibit 7: Vertical farming

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Source: ledsmagazine

Main Board transfer in the cards

Judging by its financial performance of RM30.5m net profit in FY19, the group is more than qualified to be listed on Bursa Malaysia’s
Main Board. To quality for main board transfer, Bursa Malaysia requires the group to have an aggregate profit after tax of at least
RM20m for the past three full financial years, as well as a profit after tax of at least RM6m for the most recent financial year.
Factoring a one-quarter delay due to the MCO, the group expect to conclude the transfer process by end of this year. Management
will complete and submit the necessary documents by the end of the month. Upon successful transfer, we believe the move will
attract greater interest from institutional investors which could serve as a re-rating catalyst.

Worst quarter is over; robust 2H ahead

JHM reported 1QFY20 net profit of RM5.2m (-37% YoY; -32% QoQ) on a 20% YoY decline in revenue to RM48.5m due to the
movement control order (MCO) and lockdown in China which caused temporary supply disruption. While our forecast reflected a soft
1H, in which we opined is acceptable due to workforce curtailment of 20-50% during the MCO, we believe the worst is over for JHM.
That said, we expect QoQ growth in the subsequent quarters as the group has returned to full workforce since May to meet order
backlogs. The group indicated that there has been no order cancellation, in fact, current orders have surged 4x the volume of usual
period. To cope with the spike in orders, the group is realigning its production facilities which involve upgrading to a new surface
mount technology (SMT) line that is capable of 4x the output capacity of its current SMT line.
With visibility for 3QFY19 locked in and orders flowing in steadily for 4QFY19, we anticipate a strong recovery in 2H. On the macro
side, we see flashing signs of recovery in the automotive market. Assembly lines are returning to full production as authorities eased
restrictions that shuttered many dealership and kept consumers at home.

Financial performance
The group has logged an impressive revenue growth, representing a 5-year CAGR of 29% from FY14 to FY19. This was supported
by broad adoption and acceptance of improved lightings as an essential feature for cars within the automotive LED lighting industry.
Net profit margin also expanded from a low of 5% in FY15 to 12% in FY18 thanks to the growth of advance lighting applications with
newly added technological features and design breakthroughs. The slight dip in FY19 revenue was due to the General Motors strike
which involved 48,000 employees. This led to production halt in 30 General Motors’ factories across the US and in turn, lower
loading volume to JHM. Net profit margin for FY19 also edged lower due to higher tax as some of its capital allowance have expired.
Going forward, we expect the net margin to stabilise around mid-teens level.
In terms of segmental breakdown, the group is highly involved in the automotive market which consists of 70% of FY18 group
revenue while the industrial segment stands at 28%. Comparatively, the contribution from the automotive market shrank to 66% in
FY19 when the group secured a US customer which boosted the industrial segment to 33%. Sales from the aerospace segment is
still minimal and will only see gradual ramp-up in FY21E with more meaningful contributions in FY22E-FY23E, poised to take off with
the recovery rally of the tourism sector.
We are forecasting a slight revenue growth of 5.9% in FY20E as we expect roaring US automotive sales in the 2HFY20 to offset the
negative impact of MCO during the 1HFY20. Beyond that, we are looking at a 24.7% growth for FY21E backed by the continuity of
strong automotive sale coupled with the exiting prospects of 5G and EVs.

Exhibit 8a: Revenue Exhibit 8b: Net Profit

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Source: Company

Exhibit 9: Segmental breakdown

Source: Company

Valuation
We initiate coverage on JHM Consolidation with an OUTPERFORM recommendation and a target price of RM2.00, which is based
on FY21E PER of 22.2x, representing +1SD above its 3-year mean considering exciting prospects from 5G, electric vehicle (EV)
charging stations, horticulture venture and new automotive customers. Its aerospace venture also offers enormous potential but will
only see significant contribution in 2022 and beyond. The stock is currently trading at FY21E PER of 14.5x; a steep but unwarranted
discount to UWC’s 26x (based on Bloomberg consensus).
Despite the recent share price rally, JHM remains one of the biggest laggards in the technology sector (see exhibit 10) as investors
weighed the impact from the ailing global automotive industry as well as discounting JHM’s aerospace venture angle. However, we
think these factors have been very much misconstrued. Firstly, notwithstanding the Covid-19 impact, JHM’s automotive segment is
expected to register a strong 2HFY20 as (i) it recently secured several new customers including a car manufacturer; (ii) its LED
modules have penetrated commercial vehicles market (previously only passenger vehicles), (iii) 2HCY19 was relatively low base
due to the “2019 General Motors strike”, (iv) global automotive sales are rebounding, and (v) LED content in automobiles will
continue to grow. Secondly, the aerospace segment only contributes 1% to group sales and we gather that global aircraft orders in
general are not cancelled but only deferred.
Exhibit 10: JHM the biggest laggard in Tech sector

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Source: Bloomberg. Prices based on 24.06.2020

Risk
Possible risks to the company are: (i) lower-than-expected orders from key automotive customers due to possible second wave of
Covid-19 which will curtail consumer spending and factory production, (ii) delay in 5G rollout owing to the long-standing trade spat
between US and China which limits China’s access to global wafer fabrication house, (iii) higher-than-expected input cost leading to
margin compression, and (iv) drag from the aerospace segment due to prolonged slowdown in the tourism sector.
While these concerns are valid, we believe the market has priced in most of the negatives. In fact, the sell-down on fears of declining
automotive sales and earnings drag from aerospace segment are overdone, in our opinion. With China as a leading indicator, we
expect the automotive sales in the US to roar back as factories reopen, followed by a strong pickup in sales. As for the aerospace
segment, current contribution is only c.1% of group sales and having a foothold in the aerospace segment while tourism is at its
bottom simply means that JHM is poised to ride the entire recovery wave, leading to a multi-year growth prospect.

Company Background
JHM was incorporated in Malaysia on 26 March 2005 and listed on the Ace Market on 13 July 2006. JHM is principally an
investment holding company with six subsidiaries, namely
i. Morrissey Technology Sdn. Bhd.
ii. Morrissey Assembly Solution Sdn. Bhd.
iii. JH Morrissey Sdn. Bhd.
iv. Morrissey Aerosystems Sdn. Bhd.
v. Morrissey Integrated Dynamics Sdn. Bhd.
vi. Mace Instrumentation Sdn. Bhd.
JHM is primarily involved in the manufacturing and assembly of surface mount technology and PCBA assembly for LED lighting
modules. The group is one of the main Electronics Manufacturing Services (EMS) providers in Malaysia providing one-stop solutions
from design, fabrication of tooling to final assembly and test of LED lighting modules. Most of the LED lighting modules are catered
for the well-known Tier-1 automotive manufacturers within the North America Free Trade Agreement (“NAFTA”) countries.
The group has also initiated a strategic business dealing with UACE into aerospace mechanical parts manufacturing and machining.
For the initial phase, the group will focus on high precision, 5-Axis based Computer Numerical Control (CNC) machining for piece
part manufacturing in its dedicated focus-facility that is compliant to the aerospace AS9100D requirements.

Exhibit 11: Machining parts and PCBA

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Source: Company

Exhibit 12: Automotive lighting module

Source: Company, NAL

Exhibit 13: Company Structure

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Source: Company

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Management profile

1. Dato’ Tan King Seng, was appointed to the Board on 13 April 2006 and is presently the Executive Director/Group Chief
Executive Officer of the Company. He graduated with a Bachelor of Science Degree in Mechanical Engineering from
National Cheng Kung University of Taiwan in 1983. Dato’ Tan started his career as an engineer with Intel Technology Sdn.
Bhd. In 1984, and thereafter in Hewlett Packard Sdn. Bhd. in 1989. Prior to starting his own business in 1995, he was a
Senior Production Engineer in charge of Optoelectronic Production in Hewlett Packard Sdn. Bhd.

2. Koh Yew Wah, was appointed to the Board on 1 June 2017 and is presently the Executive Director/Chief Operating
Officer of the Company, overseeing the overall business and operations of JHM’s subsidiaries. He obtained his Bachelor’s
degree in Mechanical Engineering from The University of Southwestern Louisiana, Louisiana, USA in 1989. He
subsequently earned his Master of Business Administration from Universiti Sains Malaysia in 1995. Mr. Koh started his
technical and management career in both multinational and local OEM corporations. He ventured into the Electronic
Manufacturing Services industry and had held various senior management level positions in EMS companies. He was a
Vice President of Operations of a Fortune 500 EMS company prior to joining the Company.

3. Low Soo Kim, was appointed as Finance Manager of the Company on 30 November 2015. She graduated with a
Bachelor of Accounting (Hons) from University of Malaya in 2002 and is a member of the Malaysian Institute of
Accountants. She started her career in the tax division of Ernst & Young Tax Consultants Sdn. Bhd. and left the company
in January 2009 when she held the position of Assistant Tax Manager. She joined a manufacturing company, a wholly
owned subsidiary of a Public Listed Company (“PLC”) as Accounts/ Finance Manager in year 2009 and was promoted to
Group Financial Controller of the PLC in year 2013. She gained experience in the areas of financial management, budget
planning, preparation of management accounts and financial reports, plantation management and credit controls of the
Group. She currently holds the position of Deputy Finance Director in the Company and is in charge of Group’s financial
reporting and corporate planning

Exhibit 14: Board of directors

Source: Company

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Income Statement Financial Data & Ratios

FY Dec (RM m) 2017A 2018A 2019A 2020E 2021E FY Dec 2017A 2018A 2019A 2020E 2021E
Revenue 246.1 264.7 256.8 272.0 339.2 Growth (%)
EBITDA 44.2 50.3 51.7 54.3 79.3 Turnover -42.8 7.6 -3.0 5.9 24.7
Depre & Amor -5.4 -7.2 -9.9 -11.1 -12.2 EBITDA -25.3 13.9 2.7 5.1 46.0
Operating Profit 38.8 43.2 41.8 43.2 67.1 Operating Profit 21.4 11.3 -3.2 3.4 55.3
Other Income 2.7 5.6 2.9 0.0 0.0 PBT 27.0 11.5 -5.3 3.6 58.2
Interest Exp -1.2 -1.3 -2.1 -2.1 -2.1 Adj Net Profit 90.7 19.8 -14.2 3.6 58.2
Associate 0.0 0.0 0.0 0.0 0.0
PBT 37.6 41.9 39.6 41.1 65.0 Profitability (%)
Taxation -8.0 -6.5 -9.2 -9.5 -15.0 EBITDA Margin 18.0 19.0 20.1 20.0 23.4
Minority Interest -0.1 -0.1 0.0 0.0 0.0 Operating Margin 15.8 16.3 16.3 15.9 19.8
PATAMI 29.6 35.5 30.5 31.6 49.9 PBT Margin 15.3 15.8 15.4 15.1 19.1
Core PATAMI 29.6 35.5 30.5 31.6 49.9 Core Net Margin 12.0 13.4 11.9 11.6 14.7
Effective Tax
Rate 21.2 15.5 23.2 23.2 23.2
Balance Sheet ROA 6.1 13.0 10.0 9.8 13.2
FY Dec (RM m) 2017A 2018A 2019A 2020E 2021E ROE 31.4 19.5 15.1 13.1 17.7
Fixed Assets 166.1 69.2 88.4 97.3 115.1
DuPont
Intangible Assets 24.2 21.5 21.5 21.5 21.5 Analysis
Other FA 26.8 0.0 2.8 2.8 2.8 Net Margin (%) 12.0 13.4 11.9 11.6 14.7
Inventories 113.3 27.4 31.2 33.2 39.6 Assets Turnover (x) 0.5 1.0 0.8 0.8 0.9
Receivables 101.2 96.1 103.4 109.5 136.6 Leverage Factor (x) 5.1 1.5 1.5 1.4 1.3
Other CA 8.4 5.2 3.9 3.9 3.9 ROE (%) 31.4 19.5 15.1 13.1 17.7
Cash 43.2 54.0 54.4 58.9 58.4
Total Assets 483.3 273.5 305.8 327.2 378.0 Leverage
Debt/Asset (x) 0.1 0.2 0.2 0.2 0.2
Payables 115.7 43.4 40.0 42.5 50.8 Debt/Equity (x) 0.4 0.2 0.3 0.2 0.2
ST Borrowings 27.3 18.5 24.5 24.5 24.5 Net Cash/(Debt) -4.9 -9.6 3.8 -0.7 -0.2
Other ST Liability 1.9 2.0 3.2 -17.1 -16.1 Net Debt/Equity (x) -0.1 -0.1 0.0 0.0 0.0
LT Borrowings 11.0 25.8 33.7 33.7 33.7
Other LT Liability 10.2 1.6 3.0 3.0 3.0 Valuations
Net Assets 317.2 182.1 201.4 240.6 282.2 Core EPS (sen) 5.3 6.4 5.5 5.7 9.0
DPS (sen) 0.0 0.0 1.5 1.5 1.5
Shr. Equity 94.4 182.1 201.4 240.6 282.2 BVPS (RM) 0.2 0.3 0.4 0.4 0.5
Mnrt. Interest 0.0 0.0 0.0 0.0 0.0 PER (x) 25.3 21.2 24.7 22.9 14.5
Total Equity 94.4 182.1 201.4 240.6 282.2 Div. Yield (%) 0.0 0.0 1.1 1.2 1.2
P/BV (x) 8.0 4.1 3.7 3.0 2.6
Cashflow Statement EV/EBITDA (x) 8.8 16.9 14.7 13.3 9.1
FY Dec (RM m) 2017A 2018A 2019A 2020E 2021E
Operating CF 17.1 26.0 25.9 36.2 33.9
Investing CF -4.6 -12.7 -23.5 -20.0 -30.0
Financing CF 24.5 -10.8 -2.1 -2.7 -4.3

Source: Kenanga Research

Fwd PER Band Fwd PBV Band

Source: Bloomberg, Kenanga Research

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Malaysian Technology Peers Comparison

Revenue Core Earnings ROE Net Div
Name Market PER (x) - Core Earnings PBV (x) Target
Last Price Shariah Current Growth Growth (%) Yld (%)
Cap Price Rating
(RM) Compliant FYE 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr.
(RM'm) Hist. Hist. (RM)
Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd.
D&O GREEN TECHNOLOGIES BHD 0.72 807.2 Y 12/2020 -5.7% 6.5% -15.5% 43.5% 24.0 28.0 19.8 1.6 1.4 10.9% 2.0% 0.86 OP
JHM CONSOLIDATION BHD 1.30 736.0 Y 12/2020 5.9% 24.7% 3.6% 58.2% 23.8 22.9 14.5 3.6 3.0 13.1% 1.2% 2.00 OP
KESM INDUSTRIES BHD 7.66 333.3 Y 07/2020 -23% 24.0% -37.0% 366% 53.7 84.5 18.1 1.0 0.9 2.0% 1.1% 7.40 MP
MALAYSIAN PACIFIC INDUSTRIES BHD 11.08 2,310.7 Y 06/2020 2.2% 9.0% 7.6% 29.0% 12.8 12.5 9.7 1.6 1.6 10.5% 3.0% 13.30 OP
P.I.E. INDUSTRIAL BHD 1.30 514.6 Y 12/2020 13.5% 13.5% 24.3% 15.0% 8.9 7.1 6.2 0.7 0.7 9.6% 1.6% 1.40 MP
SKP RESOURCES BHD 1.39 1,760.7 Y 03/2020 18.9% 24.2% -30.4% -0.8% 9.5 9.6 6.6 1.6 1.4 15.8% 5.2% 1.56 OP
UNISEM (M) BHD 2.07 1,530.3 Y 12/2020 -7.0% 15.9% 40.2% 23.2% N.A. 14.0 12.6 1.0 1.0 7.3% 3.1% 1.80 MP
Source: Kenanga Research

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JHM Consolidation Initiation
29 June 2020

Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10%

MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%

Sector Recommendations***

OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10%

NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%

***Sector recommendations are defined based on market capitalisation weighted average expected total
return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not
make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the
specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This
document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.
Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document
or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or
otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

Published and printed by:

KENANGA INVESTMENT BANK BERHAD (15678-H)

Level 17, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia
Telephone: (603) 2172 0880 Website: www.kenanga.com.my E-mail: research@kenanga.com.my

PP7004/02/2013(031762) Page 14 of 14