If you haven't yet considered names like YTL Power and Johor Property Companies, it's time to take note. The Data Centre theme is emerging as Bursa Malaysia's single largest catalyst this year, with a scope that is more extensive than many anticipated. This is not mere hype; it is a compelling investment opportunity that is gaining momentum. Policymakers are now executing long-conceptualized plans with full commitment and no reservations.

Malaysia’s ambition to become Southeast Asia’s premier destination for data center operators is clear and resolute. A quick search will reveal an abundance of literature published over the past 12 months by official sources and mainstream media, underscoring this strategic focus.

Turning our attention to JCY International (5161.KL), the release of its 2Q24 results on Tuesday evening prompts a closer examination of the company in granular detail.

Results Snapshot (click here)

https://www.klsescreener.com/v2/stocks/view/5161/jcy-international-berhad

My Review of the Results

JCY International’s net profit for 2Q24 reached RM5.3 million, representing a substantial increase of 302% QoQ and 121.1% YoY. This impressive performance can be attributed to several key factors:

• Improved Revenue: Revenue increased by 16% QoQ and 40% YoY, driven by a 3% QoQ growth in quantity and a notable 13% QoQ increase in ASP (Average Selling Price). This revenue boost is primarily due to a 22% QoQ rise in storage capacity shipped. Essentially, JCY has successfully enhanced their selling prices and/or shifted their product mix towards higher capacity HDD (Hard Disk Drives) and SSD (Solid-State Drives).

• Forex Gains: JCY recorded a favorable forex gain of RM3 million. Given the nature of its business, forex translation gains are common among exporters. Unless there is a significant strengthening of the MYR, this factor should not pose a concern. Exporters typically benefit from a strong USD environment but face reduced profits when the MYR strengthens.

• Profitability at All Levels: Starting from the Gross Profit level, JCY reported RM8.8 million with a margin of 6%, up from 2.7% YTD-2024. At the PBT level, JCY recorded RM5.4 million for 2Q24, marking a turnaround after eight consecutive quarters of losses. The expansion of GP margins, almost doubling, indicates that with a current utilization rate slightly below 50%, any increase in units produced and sold will significantly enhance margins, demonstrating economies of scale.

• Cashflow & Cash Level: As many investment experts highlight, earnings are meaningless without cash flow. YTD 2Q24 operating cash inflow stood at +RM25 million, compared to a cash outflow of -RM25 million last year. The cash balance for the reported quarter is RM131 million, with net cash per share at 4.6 sen, representing 11.5% of the share price.

Conclusion

This marks JCY’s first profit turnaround after eight quarters of consecutive losses. The profit momentum appears robust and sustainable, with company management expressing confidence in better performance in the second half of the year compared to the first half. Such a strong and rare guidance indicates high conviction from management.

Investment Perspective

This is a long-term momentum stock idea. "Long-term" suggests significant potential, as the earnings turnaround could persist for more than 3-7 quarters ahead. With a current market cap of RM829.4 million, JCY has not yet attracted significant institutional investor attention, presenting an opportunity for individual investors.

Why JCY is a Momentum Stock

Technically, JCY's chart recently broke out of its RM0.35-RM0.36 resistance level, indicating a continuation of its uptrend. Peers like Notion VTEC (0083.KL) and DUFU (7233.KL) are also on an uptrend, supporting the positive macro-sentiment towards this sub-sector.

Why I Prefer JCY Over Its Peers

• Lower Quoted Price: A lower price implies a greater percentage increase when the stock moves up.

• Lower PER Valuation: Calculate the PER yourself, or contact me for assistance.

• Stronger Momentum Indicators: JCY's momentum indicators are more aggressive.

• Focused Business Model: JCY is fully dedicated to the HDD segment, unlike Notion VTEC, which has other business interests.

• Strategic Location: JCY’s plant is in Johor, currently a hot investment destination. Should the Johor-Singapore Special Economic Zone offer tax incentives, JCY would benefit more compared to its peers.

• Beneficiary of Strategic Themes: JCY and its peers stand to gain from the China+1 strategy and the US-China trade conflict diversification theme.