Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: INTER PACIFIC
JCY International Bhd
(May 24, RM1.53)
Reiterate outperform at RM1.55 with a target price of RM2.30: We reiterate our outperform recommendation with our fair value at RM2.30 based on FY11 EPS (earnings per share) of 17.7 sen and a PER (price-earnings ratio) of 13 times.
Both JCY's annualised top and bottom line are in line with our expectations accounting for 50.9% and 50% of our FY10 revenue and net profit respectively. Annualised net profit margin of 13.3% is in line with our expectation of 13.5%. JCY also declared a dividend of 3.91 sen per share, which is slightly above our expectation of seven sen in FY10.
Despite a commendable revenue growth of 4.1% quarter-on-quarter (q-o-q) on a usual weak quarter, JCY's 2QFY10 operating profit fell by 13.1% to RM76.1 million. The lower operating profit was due to the strengthening ringgit against the US dollar, which resulted in a foreign exchange loss of RM2.4 million in comparison to RM1.3 million in 1QFY10.
Cost of sales also increased 6.8% q-o-q as the stronger ringgit resulted in higher raw material prices while the increase in cost is due to labour shortage. As a result, operating margin fell from 15% in 1QFY10 to 12.5% in 2QFY10.
2QFY10 revenue grew by 58.7% y-o-y to RM549.7 million on the back of stronger volume, up 63.3% y-o-y. Actuator pivot flex assembly (APFA) grew by 42.6% y-o-y to RM269.1 million contributing about 38.7% of its 2QFY10 total revenue.
Capital expenditure for 2QFY10 is accelerated to RM80 million from RM36.9 million in 1QFY10. The increase in capex in 2QFY10 was mainly due to the expansion of capacity in Malaysian factories and the completion of a second factory in Suzhou, China. The expansion to China is also to ease the labour shortage problem as JCY's China's production facilities are expected to focus on products that require high labour ' the APFA. The increase in production also is due to the increase in global HDD shipments and the better outlook for the industry.
JCY's 2QFY10 net tangible asset (NTA) per share of 45.8 sen is slightly higher than the 42.9 sen recorded in 1QFY10 and 39.2 sen in FY09. Due to the higher capex in 2QFY10, its cash level dipped to RM255.2 million from RM374.6 million in 1QFY10. Nevertheless, the management indicates that it will maintain a cash balance of not lower than RM200 million.
Net gearing ratio remains at a comfortable level of 11.5%. The strong balance sheet maintained by the management is to give confidence to customers on the company stability and to provide a strong balance sheet should opportunity for M&A arises. ' Inter-Pacific Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2010.
Company Name: JCY INTERNATIONAL BERHAD
Research House: INTER PACIFIC
JCY International Bhd
(May 24, RM1.53)
Reiterate outperform at RM1.55 with a target price of RM2.30: We reiterate our outperform recommendation with our fair value at RM2.30 based on FY11 EPS (earnings per share) of 17.7 sen and a PER (price-earnings ratio) of 13 times.
Both JCY's annualised top and bottom line are in line with our expectations accounting for 50.9% and 50% of our FY10 revenue and net profit respectively. Annualised net profit margin of 13.3% is in line with our expectation of 13.5%. JCY also declared a dividend of 3.91 sen per share, which is slightly above our expectation of seven sen in FY10.
Despite a commendable revenue growth of 4.1% quarter-on-quarter (q-o-q) on a usual weak quarter, JCY's 2QFY10 operating profit fell by 13.1% to RM76.1 million. The lower operating profit was due to the strengthening ringgit against the US dollar, which resulted in a foreign exchange loss of RM2.4 million in comparison to RM1.3 million in 1QFY10.
Cost of sales also increased 6.8% q-o-q as the stronger ringgit resulted in higher raw material prices while the increase in cost is due to labour shortage. As a result, operating margin fell from 15% in 1QFY10 to 12.5% in 2QFY10.
2QFY10 revenue grew by 58.7% y-o-y to RM549.7 million on the back of stronger volume, up 63.3% y-o-y. Actuator pivot flex assembly (APFA) grew by 42.6% y-o-y to RM269.1 million contributing about 38.7% of its 2QFY10 total revenue.
Capital expenditure for 2QFY10 is accelerated to RM80 million from RM36.9 million in 1QFY10. The increase in capex in 2QFY10 was mainly due to the expansion of capacity in Malaysian factories and the completion of a second factory in Suzhou, China. The expansion to China is also to ease the labour shortage problem as JCY's China's production facilities are expected to focus on products that require high labour ' the APFA. The increase in production also is due to the increase in global HDD shipments and the better outlook for the industry.
JCY's 2QFY10 net tangible asset (NTA) per share of 45.8 sen is slightly higher than the 42.9 sen recorded in 1QFY10 and 39.2 sen in FY09. Due to the higher capex in 2QFY10, its cash level dipped to RM255.2 million from RM374.6 million in 1QFY10. Nevertheless, the management indicates that it will maintain a cash balance of not lower than RM200 million.
Net gearing ratio remains at a comfortable level of 11.5%. The strong balance sheet maintained by the management is to give confidence to customers on the company stability and to provide a strong balance sheet should opportunity for M&A arises. ' Inter-Pacific Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2010.
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