Saturday August 18, 2012
Analysts say JCY results disappointing
PETALING JAYA: Analysts are disappointed with JCY International Bhd’s recent quarterly results, and expect further margin contraction in the near future.
In a report, CIMB Research analyst Terence Wong said although the research house had warned of possible earnings disappointment, the rate of margin decline was much worse than anticipated.
“We believe that JCY’s margin will continue to trend downwards in the near term, given the muted second-half guidance by hard disk drive (HDD) original equipment makers (OEMs),” he said. “At 59% of our financial year 2012 forecast and 82% of consensus, its nine-month net profit was 10% ahead of consensus but 43% below ours.”
Although the company reported a higher net profit of RM105.2mil for its third quarter ended June, versus a loss of RM31.8mil a year earlier, it was 35.5% lower compared with the RM162.4mil in the preceding quarter.
He said the quarter-on-quarter decline was due to higher wages in Thailand (due to minimum wage implementation) and set-up costs arising from a production ramp-up.
“Although JCY is still expected to see significant year-on-year profit growth in the fourth quarter, we believe that it will see further sequential contraction as both Western Digital (WD) and Seagate have guided flat quarter-on-quarter volume growth in the September quarter.
“We also understand from our industry contacts that current build plans for WD and Seagate point to low single-digit quarter-on-quarter growth in the traditionally busiest December quarter,” Wong said.
JCY became the unforeseen beneficiary following the Thailand floods that had devastated the economy with production coming to a halt at flooded factories, causing a major disruption in the global supply chain.
The company benefited from the improved position of its main customer Seagate Technology plc as its main competitor WD suspended operations because of the floods. Seagate’s Thai manufacturing facilities were unaffected by the floods and remained in operation.
Since then, JCY said, production at HDD vendors like WD and Seagate had recovered faster than industry expectations from the Thai floods.
OSK Research said that personal computer shipments were expected to experience only marginal growth in the second half given that end-consumers may divert their spending to Microsoft Surface, iPad mini and iPhone 5 instead.
“We are revising downwards our financial year 2012/2013 earnings forecasts by 12.2%/5.2% respectively to realign with our estimates to factor in the weaker financial performance of its third-quarter 2012 results,” it said.
“Furthermore, we foresee average selling prices to decline at a quicker pace along with tepid industry HDD shipment volume,” it said.
When JCY was listed in 2010 at RM1.60, it fell out of favour with investors due to the evolving technology storage space industry with the wide availability of cheaper solid state drives.
The company dropped to an all-time low of 39.5 sen before bouncing back on the back of the flood-induced supply shortage in the HDD industry.
JCY closed yesterday at RM1.43, with 10.55 million shares changing hands.