JHM: Positive Outlook Drives Rating Upgrade as Turnaround Prospects Emerge

A leading investment bank has upgraded its rating for a key technology player to BUY, citing renewed optimism for an imminent turnaround driven by strategic operational efficiencies and a visible recovery across its core segments. The bank has also revised its target price upwards to MYR0.46 from MYR0.34, representing a 23% upside and an anticipated c.3% FY26F yield.

Analysts believe the worst is behind the company, which is now poised for a sharper-than-expected turnaround and growth into FY26, leveraging its deep-value laggard status with share prices near a multi-year low and expectations at trough levels.

Performance Review

The company is anticipated to swing back to profitability in 3Q25, following core losses of MYR13.5m and LBITDA of MYR4m in 1H25. This projected return to profitability is supported by positive peer readthroughs from engineering support players and strengthening trends in the automated test equipment (ATE) market, expected to lift its metal fabrication business. The automotive light-emitting diode (LED) printed circuit board assembly (PCBA) lines are ramping up with higher utilisation, which is set to enhance operating leverage.

Furthermore, its metal stamping and machining subsidiary is expected to report narrower losses, bolstered by new programmes and improved revenue throughput. The 1H25 losses were primarily attributed to temporary factors such as start-up costs for new projects, elevated operating expenditure, and material/inventory adjustments, which are now normalising.

Future Outlook

FY26 is anticipated to be an inflection year, with a strong foundation laid by the 2H25 recovery in automotive build-up cycles and the broader semiconductor recovery. New orders from existing clients and key partners, alongside a MYR300m Proton contract under its Joint Venture (JHM Dekai Auto Lighting), are expected to provide significant growth visibility into FY26. New projects and programmes are also projected to fuel growth within the industrial segment. Beyond new orders, restructuring and optimisation of non-profitable units are expected to unlock efficiency gains and margin uplift from FY26 onwards.

Given the renewed optimism, analysts forecast a narrower loss of MYR8m in FY25 (compared to MYR17m previously anticipated) and stronger margin assumptions for FY26F-27F, improving by 14.7% and 1.0% respectively. The revised target price of MYR0.46 is pegged to 17x FY26F P/E, which is considered undemanding in light of the turnaround momentum and improving sector dynamics.

Key Risks

Potential downside risks identified in the report include weaker product demand, cost escalation, delays in project execution, and a weaker Malaysian Ringgit (MYR). A 5% change in the FX rate is estimated to impact the model sensitivity by 5.2%.