HLIB Research 6 Jan 2011 (Hua Yang; JCY)

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: HLG

Price Call: HOLD

Target Price: 1.26

Hua Yang (Not Rated)

A Pure Play In Affordable Housing

'''' An established developer within the affordable housing niche, with a first-mover advantage.

'''' Moving more aggressively and dynamically under their new CEO, Mr Ho Wen Yan.

'''' We see RM500m as the RM500m is the "magic number" in terms of launches, and they have lined up RM1.3bn launches for the next 2 years

'''' Some good news for their flagship project One South, as an additional phase of high-rise serviced apartments has been added in, which could bring overall GDV to the RM1bn mark.

'''' We are forecasting 69-96% earnings growth in FY11-12, and in our view Hua Yang provides the cheapest exposure to the affordable housing theme, given that it trades at less than 5x P/E.

'''' We set our target price at RM1.52 (70% discount to RNAV), implying 3.1x P/E for FY12E.

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JCY (HOLD)

Thanks to the Flood

'''' The firm is expecting its net profit to jump approximately 1,900% qoq or 460% qoq, which translates between the ranges of RM121.62 to RM142.69m for the financial quarter ended 31 December 2011 (1Q12).

'''' JCY has also budgeted a CAPEX of approximately RM300m over 2 years for expansions of its facilities in Malaysia, Thailand and China.

'''' Comments: Unlike its rivals (Notion VTec and Engtek), JCY's Thai factory was fortunate to avoid the flood and able to maintain its production at full capacity.

'''' Competitors are only expecting full capacity production to be restored earliest by the end of 1H12.

'''' We are being cautious that this solid result might not sustain in the longer term as clients turning back to their original vendors when their operations are fully restored.

'''' High ASP would not be able to sustain when competition is back in full force.

'''' Following the revision in earnings forecasts, target price has been raised to RM1.26 from RM0.79. Despite expectation of strong results ahead, it might not be sustainable given the short term boost from Thai flood. Moreover, the recent strong surge in share price would have largely factored in the phenomenon.