JHM: Strong Turnaround on Cost Efficiencies Drives Optimistic Outlook, Recommendation Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report highlights a significant turnaround in a key player’s financial performance, exceeding market expectations for the third quarter of 2025. The company’s return to profitability was primarily attributed to robust cost management and improved operational leverage across its core business segments.
Performance Review
The company recorded a core profit of MYR4.6 million in 3Q25, a stark reversal from the MYR15.2 million loss reported in 3Q24. This strong performance surpassed analyst expectations, driven by a healthier recovery in both the sheet metal and automotive divisions. Revenue for 3Q25 surged 94.9% year-on-year and 10.7% quarter-on-quarter to MYR82.6 million, supported by stronger orders from key automotive clients and a recovery in industrial demand. The EBITDA margin improved to approximately 13%, reflecting enhanced operating leverage, although still below its historical peak of over 20%. The first half of 2025 saw losses primarily due to temporary factors such as project start-up costs, elevated operational expenses, and material adjustments.
Future Outlook and Growth Drivers
The positive momentum is expected to continue, with the second half of 2025 recovery setting the stage for an inflection point in FY26. Growth visibility is bolstered by new orders from existing customers, incremental contributions from key partners like Magna, and a significant MYR300 million contract under a joint venture for automotive lighting. Further new projects are anticipated to fuel growth in the industrial segment. Moreover, ongoing efforts to optimize non-profitable units within the industrial segment are expected to further boost margin recovery into FY26 and beyond. The investment bank revised its FY25 core loss forecast to a narrower MYR5.4 million (from MYR8.7 million previously) and raised FY26F-27F earnings by 6.6% and 1.5% respectively, reflecting stronger revenue traction.
Recommendation and Target Price
Given the better-than-expected earnings recovery and improved growth visibility, the investment bank reiterated its “BUY” recommendation. The target price was subsequently lifted to MYR0.52, an increase from the previous MYR0.46. This revised target price is based on a higher target P/E of 18x FY26F, reflecting the turnaround trajectory and improved visibility into FY26.
Downside Risks
Potential downside risks include weaker product demand, cost escalation, delays in project execution, and an adverse movement in the USD exchange rate. The investment bank’s sensitivity model indicates a 5.2% impact for every 5% change in the FX rate.
