This article first appeared in The Edge Financial Daily on April 17, 2017

GEORGE TOWN: JHM Consolidation Bhd, whose net profit nearly tripled in 2016, sees its diversification into the aerospace sector bearing fruit, with its new aerospace light-emitting diode (LED) lighting business segment expected to help the group sustain its double-digit revenue growth for the second year in a row for the financial year ending Dec 31, 2017 (FY17).

The group slipped into a loss in FY14, but quickly rebounded the following year. Its net profit surged 196% to RM20.62 million in FY16 from RM6.96 million in FY15, on the back of a 47.5% growth in revenue to RM193.73 million from RM131.34 million the previous year.

According to JHM executive chairman and managing director Datuk Tan King Seng, the ACE Market-listed company expects net profit to come in above RM20 million over the two years, thus qualifying it for a Main Market listing by FY18.

“We are confident about achieving the goal,” he told The Edge Financial Daily in an interview.

The group expects its manufacturing activity in the aerospace LED lighting to stabilise in FY18, and that of its aerospace mechanical parts kicking off at the same time. “Revenue contribution from the aerospace mechanical parts will come in FY19,” said Tan.

In February, JHM’s wholly-owned subsidiary Morrissey Assembly Solution Sdn Bhd was granted the British Standards Institution’s AS9100 certification for the manufacturing and assembling of electronic lighting modules for the aerospace industry.

The qualification enables it to diversify and broaden its market share from the traditional automotive lighting module to the aerospace or aircraft supply chain parts manufacturing globally.

Tan noted that in the aerospace business segment, the production of mechanical parts such as engine casing for jets could command a higher revenue in the future as they are of high value.

“Even the materials that go into it such as tungsten carbide, ceramic and titanium are expensive, but the profit margin [for these aerospace mechanical parts] is very good,” he added.

JHM is spending RM20 million to revamp its existing 15,000 sq ft facility in Sungai Petani, Kedah in order to cope with the anticipated increase in production volume from the aerospace business segment. The allocation includes purchasing new equipment.

“We have to separate the manufacturing of both the auto and aerospace divisions, although they are both related to lighting, because the expectations are different. Both require different resources, quality control and raw material,” Tan explained.

JHM will start production of the aerospace LED lighting modules towards the end of this year.

While the traditional auto LED lighting segment will continue to be JHM’s mainstay, Tan believes that the aerospace LED lighting segment will overtake it in three to five years. The auto LED lighting unit now contributes 80% of the group’s revenue.

“The remaining 20% of our revenue comes from the manufacturing of microelectronics for industrial product (12%) and the mechanical division (8%).

“We recently ventured into general lighting, which would contribute 5% to the LED lighting business segment’s revenue [in the first quarter ended March 31, 2017]. We expect it to increase to 10% by the end of FY17,” he said.

Going forward, JHM aims at manufacturing LED lighting for trucks and bus vehicle applications. Tan said it recently secured a contract to make full lamp units for trucks and buses serving the North American Free Trade Agreement markets, but declined to disclose the contract value.

“The two-wheeler contract would be our first project for first-tier manufacturers in Japan. It is very big in terms of revenue because motorcycle turnover is high [in the region].

“We target production for both these projects to start in the second half of FY17. So based on this business unit alone, we can see our revenue grow by 20% this year,” he said.

The group has set up a marketing and technical support contact in Southeast Asia to directly engage with Japanese passenger automobile and two-wheeler makers so as to manufacture lighting modules for the vehicles.

Tan said there are also plans for the group to move into the European auto LED lighting market next year, but did not elaborate.

On its two-month-old venture into the general lighting business segment, JHM is in the process of getting a qualification to build street lighting units for a US customer and ceiling lights for a European-based LED manufacturer that markets to a well-known home products retailer.

“In the meantime, we are developing agricultural LED with a customer in Europe. Agricultural lighting is used in greenhouses in cold countries. The lights would need to emit heat and ultraviolet rays for plants to grow during the cold season,” he said.

Tan holds the biggest stake in JHM at 36.3%, followed by Noble Matters Sdn Bhd at 20.2%. Noble Matters is co-owned by JHM executive director and shareholder Cheah Choon Ghee and Ong Hock Seong.

Year to date, JHM’s share price has risen 126% to close at RM3.71 last Friday, with a market capitalisation of RM428.11 million. The counter was slapped with an unusual market activity (UMA) query by Bursa Securities on April 6 over the sharp rise in price of its shares recently. In response, JHM said it was unaware of the reasons for the UMA, but pointed to the progressive improvement of the group’s results since FY15.