• One of the biggest HDD mechanical component makers in the world. JCY (listed in Feb 2010) is one of the largest global precision engineering manufacturers of hard-disk drive (HDD) mechanical components. As a multicomponent manufacturer, JCY produces base plates, actuator pivot flex assemblies, top cover assemblies and anti-discs. JCY has manufacturing facilities in Johor, Melaka and Penang in Malaysia, Saraburi in Thailand and Suzhou in China.
• JCY supplies HDD mechanical components to two of the worl d’s largest OEMs in the HDD market, namely Western Digital and Seagate. The group is a major beneficiary of stronger US$ (as almost 100% of its products are sold in US$ while an estimated 50% of production cost is in ringgit).
• Undemanding valuations. JCY is trading at compelling 7.6x P/E annualised 1HFY15 EPS of 9.8sen (vs. 5-year historical average P/E of 15x), supported by a decent yield of 3.4% in 1HFY15 and a net cash position of RM225m (15% of market capitalization or 11sen netcash/share).
• Cautiously optimistic of an improving outlook. JCY could have entered into an interesting growth phase amid room for margin expansion, underpinned by its production automation plan and consolidation among its peers which could lead to lesser competition. Moreover, the fast growing higher value cloud and enterprise storage could drive the overall industry growth and reduce its dependency on PCs over time, as opposed to the common conception that HDD industry is contracting.
• In its 2Q15 results review, JCY said enterprise shipments are expected to recover in the second half of the year on increased demand from traditional storage/server vendors as well as hyperscale companies. The Sony Playstation 4 finally commenced selling in China towards the end of March 2015 and the prospective PC refresh cycle resulting from Windows 10 may help to improve HDD shipments for the second half of 2015. The demand for cloud infrastructure and enterprise applications will continue to make up for the reduction in PC shipments.
• Poised to retest RM0.815-0.90 levels after establishing its base near RM0.68- 0.72 territory. Since tumbling from 52-week high of RM0.815 on 16 Apr to recent low of RM0.72 on 25 May before ending at RM0.74 yesterday, we believe that selling pressure has been exhausted and a base is slowly forming. Moreover, the stock is grossly oversold and about to bottom out in short term, substantiated by readings from daily and hourly MACD, RSI and Slow Stochastics oscillators.
• A decisive breakout above RM0.77 (30-d SMA) will lift prices higher towards RM0.815 and our long term price objective of RM0.90 (21 June 2013 high). Key supports are RM0.72 and RM0.70 levels. Cut loss below RM0.68.

Source: Hong Leong Investment Bank Research - 27 May 2015