JCY’s  FY13  core  loss  of  MYR77m  (>-100%  y-o-y)  was  within  our  and street  estimates.  The  overall  poor  performance  was  primarily  due  to weaker  sales  volume  and  lower  ASPs.  We  think  the  company  lacks immediate near-term catalysts for revaluation. Maintain SELL, as we see another lackluster year ahead. Our FV  is unchanged at MYR0.45, based on 0.9x CY14 P/NTA.

• No  surprises.  JCY’s  FY13  core  loss  of  MYR77m  (>-100%  y-o-y)  was within our and street estimates.  The  poor  performance  was  chiefly due to: i) a reduction in volume shipped, ii) moderating average selling prices (ASPs),  iii)  tighter  quality  requirements  from  customers,  and  iv)  the implementation  of  minimum  wage  early  this  year.  Consequently,  there were no dividends declared in FY13 (FY12: 9 sen).
• Outlook.  Western Digital and Seagate,  two  industry leaders in the  hard disk  drive  (HDD)  space,  have  guided  for  worldwide  HDD  shipments  in 4QCY13  to  be  flat  on  a  sequential  basis  (3QFY13:  139m  units). Essentially,  the  sluggish  personal  computer  (PC)  market  –  due  to  the prolonged refresh cycle for notebook and desktop PCs  –  is taking a toll on HDD demand, as more than 50% of HDD shipments are for the PC market.  That  said,  the  enterprise  HDD  segment  was  robust  given  the general need for affordable bulk data storage devices.
• Forecasts  and  risks.  After  reflecting  JCY’s  actual  FY13  results,  we widen our FY14 core loss by  1% while reducing our FY15 core earnings by  5%.  The key risks to earnings include: i) a rapid recovery in the PC market, ii) depreciating MYR, and iii) better cost efficiency.
• Valuation  and  recommendation.  We  reiterate  our  SELL  call  on  the stock as we see another lackluster year ahead.  We are of the view that JCY,  being  a  pure  HDD  component  maker,  is  exposed  to  product concentration  risk.  Hence,  in  essence,  the  company  lacks  immediate near-term  catalysts  for  revaluation.  Our  FV  is  unchanged at  MYR0.45, based on 0.9x CY14 P/NTA (representing  -1SD from the domestic HDD sector mean).

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SWOT Analysis

Company Profile
JCY International is a global manufacturer of HDD mechanical components, including: i) base plates, ii) top cover assembly, iii) actuator pivot flex assembly, and iv) antidiscs.

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Source: RHB