21 May 2012
JCY's competitors revealed that their capacity in Thailand will be back in full swing by the end of the third or fourth quarter 2012 - CIMB Research
(JCY opening stock price today (18.5.2012) was RM 1.47)
JCY remains one of the cheapest technology stocks in our universe and boasts a robust near-term earnings outlook.
It will continue to see positive flow-through from higher shipments by its hard-disk drive customers.
JCY recorded a strong second quarter for the financial year ending September 30.
Its sales improved 31% year-on-year and 3% quarter-on-quarter, lifted by a combination of higher volume and weighted average selling prices.
Gross margin surged 23.5% points year-on-year to 29.1%, thanks to better pricing, operating efficiency and a rebound of the US dollar.
But it was down 1.6% points quarter-on-quarter due largely to a less favourable product mix as customers shipped more lower-capacity drives.
However, this did not stop JCY from reporting another quarter of sterling earnings, with core net profit surging 15-fold year-on-year to RM160mil.
It generated strong positive free cash flow and ended the quarter with RM62mil net cash.
JCY also declared a higher interim dividend of 3 sen, compared with 2 sen in the first quarter of the current financial year.
Meanwhile, our latest industry channel checks suggest that both Western Digital and Seagate Technology are planning quarter-on-quarter volume growth for the remaining three quarters of 2012.
Compared to the March quarter, the pricing environment has also been fairly stable so far in the June quarter.
We believe that JCY will continue to benefit from these positive developments.
Also, our checks with two of its rivals revealed that their capacity in Thailand will only be back in full swing at the end of the third or fourth quarter.
This reduces pricing pressure in JCYs current financial year.
At 45% of our full-year forecast and 74% of consensus, JCYs net profit in the first half of the current financial year was 52% ahead of consensus but broadly in line with ours, and expect the second half to make up for any shortfall.
Our target price is based on six times 2013 price earnings, in line with its comparables.
Despite its continued share price outperformance, we believe that there is more upside from positive earnings announcements in the next two quarters.
Our main concern is the pricing environment when JCYs competitors are back in full force.