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KUALA LUMPUR: Kenanga Investment Bank Research awaits JCY International Bhd
The valuation will double with massive earnings growth, as it benefits from the up-cycle in the HDD (hard disk drives) market.
The research house has a “commercial buy” call on the shares with a fair value of RM1.35, which represents a 100% increase from the last traded price of 67.5 sen on Tuesday.
According to Kenanga, JCY is well positioned in the HDD supply chain and is poised for a great payback cycle due to growing demand in the sector.
“With the emphasis on social distancing still in place, the practice of working from home is expected to continue for the foreseeable future.
“As such, web-based interactions (eg, e-learning, video conferencing, and remote access file sharing) have increased enormously since the Covid-19 crash.
“Due to the sudden increase in traffic and demand for bandwidth, the cloud giants are experiencing a huge explosion in data center development,” he said.
Kenanga also expects increases in HDD shipping volume after tracking down JCY’s top two customers, which contribute more than 80% of the group’s sales.
“We noticed that HDD shipping volume in the last six months (in Exabyte terms) increased 47% YoY and 21% YoY, respectively.
“Both clients are driving a strong increase in the second half of 2020 due to strong demand for 14TB units, as well as the upcoming 16TB and 18TB units,” he said.
He added that JCY is realigning its production plant and bringing in new equipment to cater for the increase in components per unit, which is increasing in tandem with the growth in storage capacity.
Kenanga believes that HDD will continue to dominate the data center space for the next decade given its cost advantage over SSD (solid state drive), which costs nine to ten times more for the same volume.
The research house added that the supply chain has been consolidated since the 2011 flood of Thailand, making JCY one of the few remaining suppliers in the industry.
“As a result, key customers are loading more volume into the group, making JCY the leading supplier of motherboards, actuators and disc spacer plates,” he said.
Meanwhile, JCY is expanding into the auto business, which could morph into a new earnings campaign in two to three years, given the group’s specialty in foundry and manufacturing.
Kenanga projects fiscal year 21 net profit to grow threefold to RM150.8k as the group takes on increased cargo volume in the second half of 2020 and into 2021. It kept its “business buy” call on the counter. with a fair value of RM1.35.
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