Just my take on Sendai:

What does a company claiming to be able to complete RM2b contract work a year in future but has no RM70m cash to pay its debt tell you?

Poor biz model and highly-indebted company. High receivables of over Rm1b (note: risks of significant impairment in the future is super-high and this is a time-bomb) and huge net debt of almost RM900m (note: chances of many more rounds of cash calls are high in coming years).

Past profits have been erratic and in decline, a lot of them still parked in its receivables balances.

Free cash flow in future determines fair value of a company.

To me, it is very clear this company should be worth not more than RM300m. RM200m to RM250 is the fair value I ascribe to it or around RM0.30 a share.

3 tinggi: : Accounts receivable, inventories and net debt are high and/ or increasing. There are risks of inflated profit and/ or bad debt write-off down the road. The biz model is weak.

The net cash of Perstima is about RM40m, enough to pay for 1 year of dividend of 40sen a share. This is not much. The loss in the latest quarter did not seem to have resulted from an one-off event, but rather management explained it as something continuing into future until they are in a position to improve on the selling price and/ or production costs. It is reasonable to expect dividend to plunge proportionally by round 75% to say 10sen a share a year in coming quarters. The market price should trend further down to RM4. RM7 is quite clearly not sustainable.

This has been a company propelling itself into blue-chip status, or so its supporters have been lulled by the rising share price in the past few years into believing. Its shareholders learn a painful truth today that transfer pricing by a holding company (in Japan in this case) against its subsidiary (Perstima in this case) can make as well as break the latter. To be fair, the company has in the past few years been cautioning that the biz environment is challenging in all its commentaries. Still, the negative impact from the increase in the input price charged by the holding company, which went uncompensated by a corresponding increase in what Perstima charged its arms-length customers, is very drastic by any standard. We as observers draw a good lesson here too.

What a bomb to the shareholders! Most did not see the profit plunge coming, not to this extent. The market price should adjust down tomorrow by RM1 to RM2.

The net profits for FYE 2018 may reasonably be estimated to be around RM30m or EPS of 19sen solely due to the new warehouse in Klang. When the factory in Vietnam is completed in FYE 2019, the impact on EPS should be at least 30% upside, bringing annualised EPS post-Vietnam factory to be at 25sen. If the demand for its goods continues to expand, it is reasonable to estimate that Vietnam production should have scalability or may need another factory there if it proves more cost-efficient than those in Malaysia. As unit cost would shrink as production volume expands, we may see the EPS to grow to say 30sen a share in FYE 2020 or 2021. Perhaps the biggest wild card is the possibility of some of its products entering USA. It may seem remote and the process of obtaining licence may continue for many more years but if it happens in coming years, it will be huge. US market for its products should be what the shareholders are eyeing for in the mid- and long-term, amidst the ongoing production expansion.

It is likely the management will declare dividend in the range of 30% to 50% of its EPS to preserve cash for capex till FYE 2019. But once the capex needs taper off after that, if the management increase its dividend payout to 70 to 80%, the PE multiple should increase to at least 15 and still deliver a dividend yield of 5%. With an assumed 30sen EPS in FYE 2020 and 2021, the share price may trade at RM4.50. So, the upside is there but the wait is another 3 to 4 years. Many factors in the interim may still disrupt this scenario like weakening USD against RM, election jittery, global economic weakness. Any price weakness should be a good chance to accumulate for those who have faith in the management, products and industry it operates within. Those who sell to keep cash or for other opportunities should be able to do so happily, thanking the management for their work in the past 3 years in the process.

Happy investing.

The tax expense has been negligible for years. When tax incentives cease and normal tax rate kicks in in the future, profit and dividend per share should come down by around 26%. All other things being equal, dividend per share may drop to 10sen and dividend yield at the current market share price of RM1.87 will drop to 5.3%.

For consecutive years, it has increased bank borrowings to the tune of hundreds of millions to finance its accounts receivable. This could be due to its surge in sales. But I still think it is a big anomaly as it remains very cash-poor despite the business growth. This, which is hugely concerning, aside, the profit increase is quite interesting, especially if it is genuine (i.e. its accounts receivable are all collectible eventually)

Kcchongnz:

Anyone who has studied LCCI or STPM accounting or equivalent would understand that extra shares alone add no value to the company.

Any claim of that improving illiquidity is false as the minimum trading lot has long been changed to 100 units, not 1000 units. High- price shares like Dlady, Nestle, are good examples that do not subscribe to this artificial exercise.

Calvin:

My performance from 2011 to 2015 was unrepeatably great. But I am plateauing now in 2016. Ouch.

Increase or decrease in the number of shares (and company-issued call warrants) WILL NOT add any value to the company under ALL circumstances as the Net assets per share of the company will decrease and increase correspondingly.

They are all exercises of futility.

Use just VERY good FA in investing.

Did you see many rich "Mr Look Chart" around? :D

The only noble thing remaining to be done or spearheaded by big investors like KYY who have been burnt to a cinder by this ultra-blatant fraud since 2009 is to sue everyone including auditor, and all directors in time for police to catch them during the next AGM.

That is the only remaining relevant issue applicable to this company- Justice to its shareholders.

This was painstakingly forewarned in detail years ago as the signs were so clear even back then. I sent a personal letter to KYY asking him cut loss and sell all even at the then 74sen, though he bought it earlier in at RM1+. It has been a systematic fraud since the start. Nothing was real including the RM700m cash, this irresponsible and illegal paper-story of losing RMB400m and pretty much everything else. When a company with RM800m cash on the books asked you money via rights issue earlier this year, that marked the beginning of the end of what has been an outrageous fraud. Expect the remaining RM700m to be wiped off in other forms of trickery soon. I sympathize with the shareholders but they have been fully cautioned in the past years.

Additional RM45m was transferred from cash to Other Investment in the current quarter, without any explanatory note nor a separate announcement.

It is a worrying development.

Total borrowings net of cash is RM540million. Huge. This will take at least 3 to 4 years to eliminate even if the results continue to improve steadily.

The industry is worrisome as fewer people will smoke their way to their graves in future. The high capex requirement is also a concern as operating cash flow keeps going back to capex, instead of to shareholders via dividend. But in the near and medium term, their exposure to Vietnam will be exciting given that the current valuation is undemanding.

If FYE17's estimated Net profit is RM19.5m, it will amount to RM0.24 EPS, not RM0.195 EPS. Careless mistake.

I am skeptical of the acquisition. This is because its balance sheet has deteriorated significantly. Goodwill is up RM30m, Accounts Receivable up RM40m, Long-term loan up RM40m, Accounts payable up RM18m and Cash down RM9m. Optimistically assuming all Accounts Receivable is collectible (though it is more than 6 months of sales, very slow moving), the company's net tangible asset is RM67m or RM1.67 per share worse off now than 9 months ago. It took big loan and pay its own cash for a business that comes with lots of accounts receivable and payable. I will give it 50/100 points for value proposition at the current price. My guideline: 80/100 is the minimum a share must score for me to place my money on.

Just for knowledge, the potential risks associated with run-in-China PLCs:

1) Create fictitious sales and inflate profit. This is done by controlling selling prices used in invoicing from suppliers and to customers who are both controlled by the major shareholder via proxies, through whom all genuine arms-length suppliers and customers must deal with in transacting indirectly with the company. Well, this is done under the guise of sourcing or bulk purchasing agent for supplier and sole or main distributors for customers. Over time, accounts receivable would grow by these inflated fake profits. Many PLCs in Malaysia which did this stop there and investors quickly sell them down. These companies tend to languish into an almost worthless shell company, awaiting suitor to do a RTO which then involves a huge receivable write off, a capital reduction to wipe off its accumulated losses, issuance of new shares and injection of new biz and cash by the new controlling shareholders.

But in China, a fraudulent CEO preempts this by moving AR into Cash in Bank to avoid suspicion. Everyone likes cash in bank and buys in "cheap" especially during and shortly after IPO process. Criminal BOD may get top officers in local branch of Banks in China to provide fake confirmations. They even created fake website for online confirmation of bank balances by auditors. The powerful ones may even have the HQ bank officer to give confirmation, just in case external auditors insist on it coming from HQ of the banks.

2) Some also understate or totally omit its genuine bank borrowings, leaving it off the records.

Either one of the above two will kill the minority shareholders. The most logical action to prove innocence is for the BOD to declare big dividend which is so simple and commonsensical to do, given the huge cash pile. Or voluntarily show documentary proof in its defense to fend off the ever raging rumors of big-time cash reporting fraud. But BOD of Xingquan did the opposite, asking more money from shareholders. What is more apparent here? The existence of all its cash balance as reported and audited or nonsensical BOD?

Just thinking aloud.

What BOD of Xinquan replied to SC:

The Company wishes to clarify that the cash balance of RM886.55 million is mainly reserved for working capital, and as explained in the announcement dated 25 September 2015, Xinquan requires sufficient cash buffer and a high level of working capital to ensure minimal disruption to its operations in the event of a liquidity crisis or a sharp economic downturn. The purpose of the Proposed Rights Issue with Warrants is to raise funds for Xinquan’s capital expenditure requirements whilst maintaining a healthy level of cash balances at all times.

In addition, the available cash balance may also be used for future business expansion into related businesses, in particular, acquisition of foreign brand(s), if and when the opportunity arises.

The Group has placed its cash balances in savings accounts with licensed banks in China which carries an interest rate of approximately 0.35% per annum. The cash is placed in savings accounts as the cash is not idle and is required to fund Xinquan’s day-to-day operations.

Just my views:

The long-suffering shareholders should have lodged a police report against the BOD. SC not least should have taken actions against the directors back in late Sep 2015.

Xinquan paid to suppliers far less than what it collected from customers all these years, generating free cash flow quarter after quarter in that process. Its day-to-day operation brings new net cash in and do not AT ALL eat into any parts of its RM945m. This is shown in P/L, Statement of Financial Position and cash flow statements prepared by Xinquan and audited by Big 4. This is also how its cash balance has been piling up in the first place.

Put simply, Xinquan could run its biz perfectly well and its working capital turns over very comfortably even if the RM945m is locked away in high-yielding FD or better yet, distributed out as dividend to shareholders, if its working capital is managed evenly throughout each quarter which is like 99% of the cases in all companies. Even in the hypothetical 1% scenario where Xinquan paid 100% of its suppliers on the first day of each quarter and collected from its customers 100% on the last day of each quarter, it would need just Rm120m of the RM945m to fund this worst and unlikely scenario.

It is outrageous for SC to accept BOD's replies to queries that clearly were not borne out by what its audited financial statements tell the readers.

The BOD has the audacity to ask from shareholders RM50m more via rights issue for capex. This is clearly a day-light robbery of its shareholders.

To many, the RM945m cash balance seems a bait dangled out by the major shareholder to keep existing and potential shareholders interested. Therefore one cannot be faulted for concluding that BOD may be buying time and getting more money from shareholders before the worst happens one day- disappearance of the biz.

Against the major shareholders, minority shareholder has little chance though. Perhaps they can try to file a special application to SC, or relevant authorities, court, etc to allow minority shareholders to collectively pay for and conduct a special investigation audit to establish the veracity of this Rm945m cash balance. If it does exist, apply for statutory permission or injunction to lock it away in a designated bank account, and then fight for a mandatory takeover from its major shareholders on special ground of mismanagement misrepresentation, fraud, etc. On paper this company has a break up value of RM3.70. So, the battle is worth it to find out the truth.

The much higher Receivables is a concern as the quality of the super-good latest quarterly earnings may not be there due to credit risk, the possibility of it being just paper-profit (i.e. good profit but poor free cash flow, etc.

Perstima's profit is guaranteed by controlled raw material cost pricing from Japan, and the management maintains a reasonable profit margin to keep everyone happy including its largest shareholders from Japan, its main customers of tin can makers, the government and the industry at large. It has a monopolistic power in its industry in Malaysia.

One major factor though all shareholders should bear in mind is a potentially existential threat imposed by China and Korea exporters into Malaysia. Perstima is very efficient in its operation but it also depends on anti-dumping taxes imposed on imports from China and Korea. At one time, the main customers were up in arms wanting to set up its own plant together with suppliers from China, thereby stopping buying from Perstima, when Perstima raised its selling price. The customers want government to scrap the anti-dumping taxes on Korean and Chinese imports.

I would expect some upside from its operation in Vietnam but so far it falls a bit short of expectation.

Perstima has been around for very long and the price did not shoot up to RM8 for the reasons mentioned above. It is a good or even top dividend stock as long as the status quo remains vis-à-vis the anti-dumping issue with Chinese and Korean import into Malaysia.

Market value: RM139m. Cash RM70m. So, you are paying RM69m net at current price. Free cash flow to the firm and equity holders is about RM15m a year. If this performance continues, it takes you 4.5 years to get back all the cash you invested. It is not cheap unless the industry outlook is good, its market reach global, its capex needs contained at less than RM6m a year in coming years. If all these factors indeed favor the company, the results will be sustainable and the management would start distributing increasing dividend. Investors have been right to take cue from its dividend policy before their moves as tile makers may not appeal to many as a business. Still, its net cash position is a big plus but the biz model and management count more if share price is to take off.

Where is Raymond who said repeatedly a while ago that it would be 30 sen by June or July 2015? Now is Aug 2015 and it is trading at 70sen+. Ouch.

NC liabilities and N liabilities should be in negative, not positive.

Some good points about Superlon which I like:

1) The thermal insulation product biz which it now focuses on has been growing healthily, most notably in past 3 quarters.

2) Net profit margin has been rising and was high at 15.5% in last quarter, suggesting pricing power of the company, possibly due to good product quality, favorable exchange rate and raw material prices.

3) Last quarterly EPS was 4.08 sen. Had there been no valuation of its land and buildings which pushed up the depreciation expense, EPS would have been 4.43 sen. Anyway, depreciation is a non-cash item and free cash flow from operation before capex actually has increased by more than its net profit suggests.

4)The sustainability of the increase in its profitability looks set as the company has already started spending in last quarter on its planned RM12m expansion plan to increase capacity and capability, first announced in Jan 2015.

5) All the capex will be financed internally as the company is in net cash position of RM15.6m (or 20sen a share). That was after it paid out 8sen of dividend in the past 12 months.

6) The company's commitment to pay out 8 sen as dividend out of its 12sen historical yearly EPS is very encouraging in terms of its policy of shareholder orientation, especially when seen in the light of its ongoing expansion exercise, supposedly to meet the growing demands for its products.

7) If the company can maintain this dividend payout ratio of 66%, and with rising profitability in coming years, it is reasonable for its shareholders to expect a high dividend yield. Extrapolating 4.08sen into next 4 quarters, you will get 16.3sen EPS. So, one may expect 10sen dividend beginning financial year end 2015 or 2016.

8) The company sells 70% of its products to >50 countries overseas. Its sales to Asian countries ex-Malaysia makes up 54% of its total sales. I like the fact that its major customers include those in India and Vietnam, countries many see rising economically.

The turnaround story of Superlon seems just beginning under what I see as conscientious management as the CEO calls her team as. Product quality, marketing strategies and continuous R&D hold the key for the future of the Company.

Given the above, Superlon looks good as a company you want to be a shareholder of, hoping for quarterly EPS reaching 5 to 6 sen in coming quarters or years, and reaping due rewards in dividend of 12 to 15 sen a year. When that happens, Superlon should trade at around RM2.50 a share at least.

The above is just my take.

RM9.94 is then the theoretically adjusted price (to the Rm8+), taking into account the dilutive effect of rights issues at lower-than-market price done by KNM in past years on the current market price, to compare like to like.

The highest KNM went was RM8+ in 2007-08 (before the subsequent 1 into 4 and then 4 into 1 share split and consolidation whose net effects cancelled each other out). From RM8+ to RM0.60, it was excruciating for its shareholders.

Why is it not 30sen yet as Raymond said it would come June 2015?

Fair Value of Genting is RM5, long term.

Tax credit represents benefits that arose mainly from tax losses or other deductible temporary differences of certain subsidiaries which will likely be realized through future taxable income.

Effect of acquisition of a subsidiary refers to accretion (since it is an income) when the subsidiary is acquired in stages. The income is earned at the expense of non-controlling interest in the group.

Both the items are non-recurring.

I respect Coldeyed a lot and he has already amply proven himself. He has amassed great wealth in his golden days and most importantly managed to retain, if not grow, his wealth for him to be able to retire very rich.

The underperformance in the past 3 years may be due to his spending less time in analyzing the changes in the business landscape in Malaysia.

He is still an idol for many including myself, although I was lucky to turn every RM1 I invested in March 2012 to RM4 in May 2015. The great 3-year record of mine is nothing compared to what Coldeyed has accomplished over 30 years.

He is still very much someone I admire and hope to learn from.

26% absolute gain from March 2012 till today is unforgivable- by the standards of a reasonably good investors, given that these 4 years generally saw good equity gains throughout the world. I think CEyed has done better than 26% but is no where near his past records.

Lesson: past success does not guarantee future achievement- on shares, investors and many other things in life.

bsngpg, I started buying JCY at 51sen in Dec 14 and made a bit from it. I quoted Raymond because he appeared for JUST a few days mocking JCY in a very unreasonable way- causing its share price to drop from 75sen to 69sen, and soon after he stopped, the share price rose quickly to 81sen.

One cannot help but speculate that his attack was meant for some big buyers to collect at 70sen and then dump at 80sen. A smart move by Raymond's boss? Or was it unscrupulous?

He said he would talk to top 10-20 shareholders or something about JCY's imminent crash to 30sen. I was waiting for his call which did not come. Was not it fun? :D

I was just quoting t words of Raymond who mocked jcy shareholders 1.5 months ago :D

Lets wait for Raymond's moment of truth: Rm0.30 by June/ July.

No sooner had I written about my concern over VS's rather big net debt position than it announced a cash call.

Raymond was a new ID created to scaremonger with SDD threats, stating 30sen target price by June 2015, and also personally going to talk to top 20 shareholders to sell down JCY.

A first call was to cause panic selling. The second (i.e. of talking to top 20 shareholders) was to make sure those who panicked have sold out.

A person without vested interest would not have had so much time to write something like that. Having said that, those uncomfortable with SDD threat may sell their holding as the price is not too bad now. Those who hold on know their risk and rewards as well.

Come back on 30 June 2015 to check if Raymond is correct or not on his target price of 30sen.

"Everybody loves Raymond"? No news from AGM too?

This proceeds was received into Scientex group when the subsidiary issued new ordinary shares that Scientex holding company (ultimate or intermediate) did not subscribe. The money was pumped in by minority shareholders in that subsidiary.

I just looked at the financials of VS for the first time since there was some story a while back about big lucrative coffee maker contracts in the offing. This story was not or has not been borne out by this latest quarterly results. Based on the performance review by the management, there was no of seasonality in its earnings such that the 2 great quarters prior to the last would come back in the future for sure. So, an EPS a share of 10sen may be taken as guide for future earnings. For EPS of 40sen, the current price does not appear cheap. RM160m net debt is also a factor to consider too. Perhaps, the share price may come down somewhat tomorrow- my view.

The market does not seem to agree with Raymond on a 30 sen share price target. This counter is owned and played by funds who know what they have bought into. Scaremongers have scared some shareholders into selling the past few days but the selling pressure is well absorbed and selling is tapering.

I think some funds are trying to play within the band of 50sen to 70sen but other funds may not agree, seeing value in JCY's free cash flow in coming years. Anyway, those who will attend the AGM, please record or summarize for us directors replies to SSD' threat.

Those who feel uncomfortable should cash out as this counter is very liquid. Those who hold on know their capital is well protected and all free cash flow beyond 2015 or mid-2016 is profit on break-up basis.

Good luck.

Competition between SSD and HHD has been around for years and both sides are serving different niches. The change in market share between HDD and SSD has always been evolutionary, not revolutionary, in reality.

Proponents of SSD of course would argue for a dramatic increase in use of SSD as this will lower its costs per GB but HDD continues to improve too.

IT geeks tend exaggerate technical ideals and play down the importance of what price difference means in real world.

The demand for digital storage will grow 40% annually with the burgeoning world population. So, it is extreme and very misleading to argue for HDD's demise in 3 months' time. Big-sounding new products came out before with much fanfare but they often have very long adaptation process to hit the market in any meaningful way. HDD in fact will continue to be the main choice due to price per GB.

One report states that HDD demand would be stable through 2018 to 2019. The latest quarterly commentary by JCY states that the current trend of stable demand is expected to continue.

How would JCY position itself beyond that would be interesting. Will JCY just slowly wind down after 2019 with all the long-standing rapport and business relationship between its owner and WD and Seagate. I do not think so and this can clarified with the directors in AGM next Wednesday.

With NTA of 57sen and free cash flow of at least 13sen a year, 70sen a share is entirely justifiable as your capital will be 100% recovered even if JCY closes shop a year from now in the unreal hypothetical scenario for discussion purposes, given the weakening Ringgit and strong US economy. I do not see Ringgit to be able to stage any recovery till 2016. The uncertainty over HDD has been heavily priced in by the market.

The run up from 50sen to 77sen is due to the vast improvement in JCY's quarterly profit as HDD mechanical part market players become fewer due to consolidation. When more competitors close shop due to high cost structure, JCY's profit margin should increase further.

So, to argue for JCY being worth less than 30sen is outlandish in economic sense.

30sen a share is a bonanza scaremongers hope to reap by writing away one-sidedly and purely from technical perspective.

NTA of JCY is 57sen a share now and it is making 13sen free cash flow a share a year. Those who buy at 70sen will secure their capital one year from now. Every sen of FCF after that is profit for their investment and JCY gives generous dividend. So, 70sen is not high or a risky price to enter in my view. Scaremongering is good for those who want to enter at a lower price.

Shareholders should take the opportunity to ask directors if JCY can maintain their last quarter performance or survive beyond 1 year (:D) and about all points highlighted by Raymondtang for JCY's planned counter measures against SSD threat next Wednesday.

In particular, ask them whether JCY will drop to 30sen in June/ July 15 and if so why the MD bought at 74sen a few days back. :D

I think Ringgit weakness, which looks set to continue will be a boost to JCY in near future. Besides, consolidation of the market means fewer competitors for JCY. At 71.5sen, the dividend yield is 7% if JCY can maintain 5 sen dividend a year. The price should be well supported by dividend yield as price drop means dividend yield increase. Maybe, JCY's business will drop or change after 5 years but within the next 5 years, its results should be good. If results stay flat for 5 years, you will have made 55% gain in 5 years if JCY closes shop and give you back all net assets. If JCY continues, all FCF beyond that is free. I think any weakness in price is an opportunity to buy. Just my view.

For discussion purpose, lets assume HDD is going out of biz in 5 years and do a rough theoretical break-up value calculation in an extreme scenario:

Net asset per share of JCY as at 31.12.2014 was 57sen. All are realizable into cash except plant and machinery and equipment worth 20sen per share which will be fully depreciated 5 years from now and will have to be thrown away. Revaluation of land and buildings should fetch at least a surplus of 10sen per share.

JCY is set to make at least 13sen free cash flow per share in 2015. If we assume the performance to stay flat for 5 years and then HDD suddenly turns obsolete in year 6 and JCY closes shop soon after, JCY will have 47sen + 13 sen* 5 years = RM1.12 per share to return back to its shareholders if it will not distribute any dividend to its shareholders in the next 5 years. So your return will be 39sen/73sen = 53% in 5 years, not at all disastrous.

When storage needs grow at 40% annually and items requiring big storage like CCTV and video will only grow in next 5 years and into future, and that HDD continues to offer declining cost per GB each year over the preceding year, as well as the long-standing rapport between JCY and WD and SG, it is reasonable to expect JCY to continually adjust to technological changes and piggyback on the growth of WD and SG through pure HDD mechanical contribution or venturing into a new form of technology for continued relevance.

The spotlight for now is whether JCY can achieve RM65m PAT or RM80m FCF in the coming quarter. The better the result, the stronger evidence that HDD remains the mainstay of data storage for at least 5 years.

Good luck.

This video is 1 year old which I find informative too.

https://www.youtube.com/watch?v=YQEjGKYXjw8

I think the price difference is 5 times between SSD and HDD now, with SSD available mainly in smaller capacity. The price gap may or may not be bridged fully as many hybrid solutions will be adopted to meet the speed, price and capacity requirements of users in coming years. Positives for JCY may include the fact that ultra-thin HDD reduces the relative disadvantage of thickness of HDD which fit into many ultra-books and laptops; and many gadgets may use a combination of both SSD and HDD simultaneous demands for speed and storage. With demand for storage rising by 40% annually as measured in gigabyte, there should be space and niche for both SSD and HDD. Of course, the best is to ask JCY directors in coming AGM end of this month on whether they have any plan to ensure the relevance of JCY's biz model by say investing in SSD when the technology around SSD matures in coming years. JCY is currently priced by market at 5.5 times of FCF, which assumes the latest quarterly results are unsustainable. Time will tell.

I find this link informative and reflective of what JCY comments on its performance and outlook.

http://www.forbes.com/sites/tomcoughlin/2014/10/29/magnetic-trends-driving-storage-and-future-memory-markets/

Notable:

1) Aided by strong USD and continued shift away from PC segment to other new better-margin product classes, JCY reported a healthy net profit margin of 10.4% in the latest quarter.

2) Foreign exchange gain arose mainly from sales, purchase and maybe a bit on financing and so may be lumped together with working capital movement in terms of realization into cash, and working capital movement is temporary in nature and neutral to free cash flow over long run. This then gives a free cash flow of RM69m in the latest quarter.

3) Using a theoretical fully-expanded share base after ESOS, this means a RM1.48b market capitalization for JCY at current market price of RM0.72. As USD strengthened further and the HDD market is expected to expand moderately in coming years, maintainable FCF may be extrapolated at RM276m a year (=RM69*4 quarters). As a result, FCF multiple is a mere 5.4 times.

4) Market is currently pricing JCY on the assumption of unsustainability, which is highly unjustified. A more reasonable and still-cheap FCF multiple of 8 is more appropriate and this gives a fair value of RM1.07 a share for JCY.