JCY’s FY12 results were disappointing, as its full-year core earnings only made up 83%/87% of our/consensus forecasts. The shortfall can be attributed to 4Q’s higher-than-expected opex (+13% q-o-q, +27% y-o-y). We are cutting our FY13 earnings forecast by 61% as we see rising risk of thinning profit margins. The weakening global HDD outlook is also casting a cloud on JCY. Since the stocknow lacks rerating catalysts, it is no longer a bargain buy. We are downgrading JCY to a SELL, with a new RM0.35 FV, based on the existing 4.5x FY13 PE.
Below expectations. Much to our surprise, JCY’s FY12 financial results were far below expectations – its full year core earnings only represented 83%/87% of our/consensus forecasts. On the back of weaker HDD demand, its top-line had continued to decline to RM536.4m (-7% q-o-q, +22% y-o-y). However, the primary reason for the shortfall was the higher-than-expected opex incurred in 4Q (+13% q-o-q, +27% y-o-y); we could not exactly pinpoint what caused the steep rise given limited information on hand. The EBITDA margin fell to 6.9% from 22.8% in the preceding quarter. Ultimately, its bottomline sank 85% q-o-q to RM15.4m (-26% y-o-y). No dividends were declared for the quarter under review.
Headwinds swirl over HHD industry. We are turning even more cautious on the HDD sector as Western Digital and Seagate have guided their4QCY12 revenues to contract by 7%-13% q-o-q, given: i) a flat total addressable market target of 140m units, coupled with ii) a continuous erosion in average selling prices (ASP). Their gross margins are expected to compress by 1%-2% from 3QCY12.
Downgrade to SELL, FV revised to RM0.35. We are revising downwards our FY13 earnings forecast by 61% as there is an increased risk in the tapering profit margin. The weaker outlook of the global HDD industry also does not bode well for JCY. Thus, the stock now lacks rerating catalysts and is no longer justifiable as a bargain buy. We are downgrading the company to a SELL and trimming the FV to RM0.35 based on the same valuation multiple of 4.5x FY13 PE. We did not expect the company’s profit margins to jump off the cliff so quickly; the post-Thai flood business boost was just a one-off passing opportunity. Nonetheless, we are taking the opportunity to introduce our financial forecasts for FY14 in this report.
Below expectations. Much to our surprise, JCY’s FY12 financial results were far below expectations – its full year core earnings only represented 83%/87% of our/consensus forecasts. On the back of weaker HDD demand, its top-line had continued to decline to RM536.4m (-7% q-o-q, +22% y-o-y). However, the primary reason for the shortfall was the higher-than-expected opex incurred in 4Q (+13% q-o-q, +27% y-o-y); we could not exactly pinpoint what caused the steep rise given limited information on hand. The EBITDA margin fell to 6.9% from 22.8% in the preceding quarter. Ultimately, its bottomline sank 85% q-o-q to RM15.4m (-26% y-o-y). No dividends were declared for the quarter under review.
Headwinds swirl over HHD industry. We are turning even more cautious on the HDD sector as Western Digital and Seagate have guided their4QCY12 revenues to contract by 7%-13% q-o-q, given: i) a flat total addressable market target of 140m units, coupled with ii) a continuous erosion in average selling prices (ASP). Their gross margins are expected to compress by 1%-2% from 3QCY12.
Downgrade to SELL, FV revised to RM0.35. We are revising downwards our FY13 earnings forecast by 61% as there is an increased risk in the tapering profit margin. The weaker outlook of the global HDD industry also does not bode well for JCY. Thus, the stock now lacks rerating catalysts and is no longer justifiable as a bargain buy. We are downgrading the company to a SELL and trimming the FV to RM0.35 based on the same valuation multiple of 4.5x FY13 PE. We did not expect the company’s profit margins to jump off the cliff so quickly; the post-Thai flood business boost was just a one-off passing opportunity. Nonetheless, we are taking the opportunity to introduce our financial forecasts for FY14 in this report.
Source: OSK
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