KUALA LUMPUR: Shares of JCY International Bhd rose on Tuesday, April 20, after CIMB Research initiated coverage of the hard-disk drive (HDD) manufacturer with an Outperform call and RM2.68 target price.
At 3.57pm, JCY was up four sen to RM1.76 with 4.1 million shares done.
CIMB Research said JCY is one of the most profitable and biggest HDD mechanical component makers in the world and accorded a target price of RM2.68, based on 12 times CY11 price-to-earnings.
"JCY should trade at least close to the current 13.5 times CY11 P/E for the FBM KLCI and a premium over the verage 11 times CY11 P/E for its global peers (range of 4.0 times to 18 times) given its healthy earnings prospects, above-industry returns and size, as well as decent dividend yields.
"Our 12 times target P/E also places it within the range that private equity firms and rivals paid in 2007-08 for some smaller SGX-listed HDD component suppliers," it said.
KUALA LUMPUR: Shares in hard disk drive component manufacturer JCY International Bhd tumbled yesterday on its trading debut in Bursa Malaysia’s main market to close 14 sen, or 8.75%, down to RM1.46.
The stock was the second most active for the day, hitting a high of RM1.55 and low of RM1.44 on total volume of 66.859 million shares.
JCY had priced its stock at RM1.60 a share for institutional investors and RM1.52 for retailers after reducing the institutional portion of its initial public offering to 383 million shares from 470 million, but maintained the retail offering at 60 million shares.
Finance director James Wong said the lower share price at the opening bell was due to market sentiment and price fluctuation was normal.
“What is more important is the fundamental of the business,” he told reporters.
Chairman Dr Rozali Mohamed Ali said while JCY enjoyed the privileges of being a public-listed company, it was important to be conscious of the added responsibility that came with being a listed entity.
“We must ensure that the company’s standards of performance that brought us here to this place are not only maintained but improved upon. There are many opportunities in the industry to be explored, and we believe that JCY will achieve greater heights,” he said.
JCY had posted RM77.47mil in net profit for its first quarter ended Dec 31, an increase of 222.8% against RM24mil in the previous corresponding period, attributable to various factors such as product mix, economies of scale, capacity utilisation, cost control measures and raw material costs.
Meanwhile, Wong clarified that JCY’s two major customers, Western Digital Corp and Seagate Technology, have a combined 61% global market share of HDD sales, and together with Hitachi and Samsung Electronics, they control 85% of the global market.
JCY hoped to increase its market penetration from its tie-ups with Hitachi and Samsung.
Wong said the Hitachi and Samsung contracts were likely to impact JCY’s revenue in the financial year ending Sept 30, 2011 but it would not be significant.
JCY launched the prospectus of its initial public offering (IPO) of 530.2 million ordinary shares with a nominal value/par value of 25 sen each yesterday.
The IPO comprises an institutional offering of 470.3 million shares at a price to be determined by way of book building, and a retail offering of 59.9 million shares to the public at RM2 per share, or at a 5% discount to the institutional price.
JCY is presently wholly-owned by YKY Investments Ltd, a private company owned by Yong Yoon Kiong.
Yong is a Malaysian who resides in Singapore where the JCY group is headquartered.
JCY’s plan to raise as much as RM1.06bil makes it Malaysia’s second-biggest IPO in six years after Maxis Bhd’s record RM11.2bil offering in November.
It will also be the biggest technology IPO in South-East Asia.
Upon listing, JCY’s total market capitalisation is estimated at RM4.09bil, making it the largest technology company listed on the local bourse.
Bursa Malaysia has risen 43% in the past 12 months along with a surge in listings.
“The listing will enhance our company portfolio and provide us access to the equity capital market to empower us with the financial flexibility to pursue growth opportunities,” said JCY chairman Dr Rozali Mohamed Ali after the prospectus launch.
“JCY intends to grow further and wants to secure a bigger percentage of the global market share. By listing, it gives our customers comfort, security and continuity of achieving sustainable growth.”
Finance director James Wong said JCY expected the IPO to perform well on its debut, given the strength of its strong financial position and the sector it operated in.
“As far as fund managers are concerned, they are happy with us and we believe we will do well,” he said.
More than 80% of JCY’s revenue is from Western Digital Corp, the world’s second-largest maker of HDDs, and Seagate Technology.
The company is also in talks to supply disk-drive base plates to Hitachi Ltd and Samsung Electronics Co and expects to start shipping the product by the middle of the year, according to Wong.
He added that “JCY planned to allocate RM182mil for capital expenditure in the financial year ending Sept 30, 2010 (and) to raise its production capacity by 30%.”
The capital expenditure is for the purchase of machinery primarily for the company’s expansion plans in Malaysia and Thailand.
JCY also expects to use 20% of the capital expenditure for its plant in Suzhou, China, which is expected to be operational soon.
The HDD industry was hit hard by the global economic downturn in 2008 but demand has returned due to a fall in personal computer (PC) prices, according to industry researcher TRENDFOCUS Inc, which expects PC demand to grow 10% to 15% annually through 2012.