JCY International (Buy)

Echoing WD and Seagate’s Solid Results

• Both Western Digital (WD) and Seagate, who combined control more than 90% of the global HDD market share, reported their robust 4QFY12 results recently. WD’s performance handily beat streets’ estimates thanks to more shipments, higher ASP / margins and improved product mix.
• WD successfully captured more market share as Seagate was impacted by an isolated supplier quality issue that affected on-demand, high-margin mission critical enterprise HDD. WD’s ASP was sustained persistently at USD65 (vs. 1QFY12: USD46) translating into a significant hike of over 41% compared to pre-flood level.
• As one of WD’s biggest suppliers, we expect JCY to ride on WD’s speedy come back and flourish in tandem.
• Depreciation of MYR coupled with decrease in steel and aluminum prices also augur well towards JCY’s profitability.
• We have revised our forecasts upward reflecting sustainable TAM demand and quicker than expected recovery by WD. As a result, FY12-14 EPS are enhanced by 15%, 47% and +45% respectively.
• Following the revision in earnings forecasts, our target price has been raised to RM1.85 from RM1.61 based on 6x P/E.

Source: Hong Leong Investment Bank Research - 2 August 2012