• Maintain NEUTRAL and MYR0.43 TP, 4% downside. JHM Consolidation’s 52%-owned subsidiary, JHM Dekai Auto Lighting, has secured MYR300m in a contract from Perusahaan Otomobil Nasional (Proton) to supply parts for specific Proton car models for five years from 2H25 onwards. We are positive on the development, as it will contribute recurring income to the group and boost the group’s capability in full lamp fabrication and assembly, while it makes further inroads into supply products to other South-East Asian markets.

• Recap of details. In 2021, JHMC entered into technical collaboration agreement with Jiangsu Dekai Auto Parts (Dekai), which provided the former with an opportunity to venture into supplying automotive lighting to Proton- Geely. Several delays in project transfers and penetration into the local supply chain dragged the overall development. Subsequently, the two parties signed an MoU in Sep 2023, for the purpose of designing, manufacturing, marketing, and selling automotive lighting products in Malaysia and other South-East Asia countries. A JV agreement was then struck on Nov 2024, and JHMC came to hold a 52% stake of JHM Dekai Auto Lighting.

• Dekai is a manufacturer of automotive lighting products. It offers services such as design and engineering, injection moulding, full lamp assembly, and complete lamp testing for original equipment manufacturer or OEM customers. Dekai is one of China’s Tier-1 players with the ability to transition through design to prototype and into the mass production of complete interior lighting, rear lighting and head lighting.

• Recurring income. Assuming a net margin of 8-10%, a 5-year MYR300m contract should translate into MYR2.5m-3.1m (11-16% of FY26F earnings) earnings per annum to JHMC, excluding the minority interest. Note that we had previously assumed contributions from Proton-related projects, but this recent contract win is ahead our previous assumptions of MYR30m-50m pa. Hence, we raise FY26F earnings by 3.8%, but keep FY25F earnings unchanged.

• TP and ratings. While we are positive on this new development, the contribution may only commence gradually in 2H25. In the near term, earnings will continue to be affected by gaps in the postponement of new projects (delays in model launches by customers) and end-of-life phases for existing models, while sub-optimal utilisation rates will remain a drag, with some of its semiconductor customers are experiencing a slower recovery. We maintain our MYR0.43 TP, which is pegged to an unaltered 17x FY25F P/E. Our TP also includes a 0% ESG premium/discount.

• Downside risks include lower-than-expected demand, cost escalations, a stronger MYR, and delays in new project execution. The opposite of such circumstances would present upside risks.

Source: RHB Securities Research - 11 Dec 2024