HLIB Research 9 Feb 2012 (WCT; MRCB; JCY; Traders Brief)

Stock Name: WCT
Company Name: WCT BHD

Research House: HLG

Price Call: BUY

Target Price: 2.98

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: HLG

Price Call: BUY

Target Price: 2.64

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: HLG

Price Call: HOLD

Target Price: 1.33

WCT (BUY)

The first for FY2012

'''' WCT has been awarded a contract to design and construction the new Ministry of International Trade & Industry (MITI) HQ at Jalan Khidmat Usaha by Putrajaya Management S/B for RM300.5m. Works are expected to be completed in Feb 2015.

'''' After a barren spell last year, WCT has finally clinched a meaningful project. We understand that the new MITI HQ was supposed to be awarded last year, and has finally come to fruitation. Overall, WCT's outstanding order book has been lifted to ~RM2.7bn, translating to ~1.7x FY10's construction revenue and ~1.3x order book-to-market cap ratio.

'''' Maintain BUY call with TP of RM2.98 based on 14x average FY11 and FY12 earnings.

''

MRCB (BUY)

FY11 lifted by KL Sentral developments

'''' Reported FY11 earnings grew by 15% to RM77.5m (5.59 sen/share). However, after adjusting for EI of RM5.29m, core earnings came in at RM77.2m (5.21 sen/share), missing our estimates slightly by 6% but off consensus' mark by 16%. Nonetheless, FY11's core earnings growth was still decent at 7%, lifted by strong performance in the property division.

'''' 4Q marks the second consecutive quarterly EBIT losses for the construction division. We understand that the losses occurred due VOs which is pending approval. Hence, once the VOs are approved, there should be lumpy earnings recognition for the division going forward. We are not overly concerned as it is a timing issue in profit recognition. On the other hand, the property division saw tremendous growth, underpinned by the maturing KL Sentral developments.

'''' Forecasts under review pending analyst briefing. Maintain BUY call with TP of RM2.64 based on SOP valuation.

''

JCY International (HOLD)

1QFY12 Results

'''' 1QFY12 core net profit of RM164.9m exceeded our expectations, accounting for 42% of our full-year forecast and 71.6% of street's estimates.

'''' JCY registered a revenue of RM599 (+27.4% yoy, +27.1% qoq), EBITDA of RM190.6m (+434.7% yoy, +362.7% qoq), PAT of RM162.5m (+2,063% yoy, +514.4% qoq)

'''' JCY's performance was 8.3% better than profit guidance issued in January, attributable to increase in orders, higher ASP, effective product mix, favorable exchange rate and continuous cost management.

'''' JCY managed to capture 25% of HDD component market after the Thai flood as it saw orders from Seagate almost doubled. As a result, JCY achieve better economy of scale and scope (product mix) while achieving above 80% utilization rate.

'''' The firm acknowledged the challenges in acquiring talent and human resources and may be a bane to its growth.

'''' We have revised our profit forecast marginally after revising our cost models. As a result, FY12 and FY13 EPS are revised by +12.3% and -3.2% respectively.

'''' Following the revision in earnings forecasts, target price has been raised to RM1.33 from RM1.26

''

KLCI: To retest 1570 zones after the 1550 breakout

'''' Renewed buying interest on index-linked stocks after recent consolidation and persistent active retail participation on lower liners, ACE and penny stocks are expected to sustain KLCI rally in the short term, in anticipation of positive progress on Greece debt talk, acceleration in ETP projects rollout, continuous funds inflows and stronger global manufacturing data.

'''' Immediate supports are 1542 (upper Bollinger band) and 1530 (31 Dec 11) whilst resistances are the upper channel near 1570-1580 zones.

AMMB: To retest 200-d SMA

'''' ''Currently, the momentum and trend indicators are on the mend and AMMB is consolidating upwards along the uptrend line formed since Sep 11 low. Following the triangle breakout, AMMB could test higher ground over the next few sessions with immediate resistance at RM6.15 (200-d SMA).

'''' A more bullish outlook would only appear if share price manages to close consistently above the 200-d SMA. The next upside targets are RM6.23 (50% FR) and RM6.46 (38.2% FR).

'''' ''Immediate supports are RM5.86 (100-d SMA), RM5.82 (mid Bollinger band) and RM5.71 (lower Bollinger band). Cut loss below RM5.71.''

OSK: JCY Intl RM300m capex positive move

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: OSK

Price Call: BUY

Target Price: 1.48

JCY International Bhd's move to allocate RM300 million in capital expenditure (capex) to expand its facilities in
Malaysia, Thailand and China is positive in the long term, said OSK Research Sdn Bhd.

In a research note today, OSK said the move indicated the management's commitment and conviction to strengthen its position as a components maker.

"Nonetheless, we see the allocation as a fluid target in view of prevailing market conditions," it said.

It said JCY, which recently posted a strong first-quarter net profit of RM150 million, a 100 per cent increase year-on-year, emerged from the Thai floods relatively unscathed.

"The floods and the subsequent component shortfall have taken a toll on most of its competitors," it said. OSK said it would maintain a 'trading buy' on the stock with a higher fair
value of RM1.48, from RM1.30 previously. -- Bernama

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.

''

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.

CIMB Research ups JCY target price to RM1.54

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: CIMB

Price Call: TRADING BUY

Target Price: 1.54

KUALA LUMPUR (Jan 5): CIMB Research has raised its target price for JCY International Bhd to RM1.54 and has a trading buy on the hard disk drive maker.

It said on Thursday that JCY issued a positive profit guidance for the December quarter that was even better than its already-above-consensus estimate.

'We believe that the positive earnings momentum will continue for at least the next two to three quarters and should catalyse a rerating of the stock.

'The favourable impact of a higher ASP, better product mix and stronger US$ prompts us to revise our above-industry forecasts again for FY12-14. This raises our target price to RM1.54, still based on 6.0 times CY13 P/E. Maintain Trading Buy,' it said.

JCY climbs to 13-month at midday on strong HDD demand

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: OSK

Price Call: BUY

Target Price: 1.30

KUALA LUMPUR (Dec 28): Shares of JCY International Bhd rose to a 13'' month high at midday on Wednesday on sustained buying interest as the hard disk drive (HDD) manufacturer was not affected by the recent severe Thai floods and due to strong demand.

At midday, it was up 3.5 sen to RM1. There were 17.19 million shares transacted at prices ranging from 97 sen to RM1.01.

OSK Research had on Dec 23 upgraded the TECHNOLOGY [] sector a Neutral as the worst impact from the Thai floods should be over while restoration of production in Thailand was going on at full steam.

The research house had said it came to understand that Western Digital and Seagate had used this opportunity to push for higher prices of their HDD products (50%-100%) whilst cutting down warranty periods

' We are keeping our earnings forecasts unchanged for Engtek and Notion but revising our valuation from 0.7 times to 0.9 times price-to-book value. They are both upgraded to Neutral from Sell. Engtek at RM1.52 and Notion at RM1.69.

' As for JCY, we are raising our earnings forecast by more than 100% as their equipment was unscathed. Valuation switched from 0.9 times PBV to 8 times FY12 PER. Call upgraded to Trading Buy with FV of RM1.30. We understand that there are rumours of a strong price push over the next one month,' it said.

''

JCY International up after upgrade by OSK Research

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: OSK

Price Call: TRADING BUY

Target Price: 1.30

KUALA LUMPUR (Dec 23): JCY International Bhd shares rose on Friday after OSK Investment Research raised its recommendation on JCY Trading Buy from Sell.

At 9.35am, JCY added half a sen'' to 91.5 sen with 844,400 shares traded.

OSK Research on Thursday upgraded the TECHNOLOGY [] sector to Neutral and said that better HDD pricing could help mitigate losses from the Thailand flood.

It said that against the backdrop of the massive works in progress to restore operations following Thailand's crippling floods, the worst could well be over.

The research said it had become less bearish on the hard-hit HDD components sector given the ongoing accelerated restoration as well as potential price hike over the immediate term, which could mitigate the earnings pressure from forgone capacity in the short term.

'As for JCY, we are raising our earnings forecast by more than 100% as their equipment was unscathed. Valuation switched from 0.9x PBV to 8x FY12 PER.

'Call upgraded to Trading Buy with Fair Value of RM1.30. Understand that there are rumours of a strong price push over the next 1 month,' it said.

Runaway Share Price Unjustified

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: OSK

Price Call: SELL

Target Price: 0.41

CIMB Research upgrades JCY to trading buy from trading sell

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: CIMB

Price Call: TRADING BUY

Target Price: 1.14

KUALA LUMPUR (Nov 30): CIMB Equities Research has upgraded hard-disk drive manufacturer JCY International from a trading sell to a trading buy.

It said on Wednesday its latest channel checks confirmed that Western Digital (WD) had booked JCY's capacity even though WD's volume will be down significantly.

'In view of this and higher average selling prices (ASP), we now expect a significant jump in earnings in the coming quarters,' it said.

CIMB Research said that the FY9/11 results were better than consensus and its loss forecast of RM7.8m, triggering FY12-13 EPS upgrades.

'This raises our target price from 58 sen to RM1.14 even though we now value it at 6.0 times CY13 P/E (previously 8.0 times CY12), closer to comparables. Upgrade from Trading Sell to Trading Buy,' it said.

It said JCY's sales were fairly in line with its estimate. The main positive surprise was the strength of the recovery of gross margin on the back of better operating efficiency and good cost control.

This, together with RM5.4 million forex gains, enabled JCY to turn from losses in 3QFY11 to a net profit of RM26.4 million in 4Q. It generated positive free cash flow during the quarter, helped by lower capex. As expected, no final dividend was declared.

'Our previous downgrade of JCY to Trading Sell was premised on the anticipated plunge in volume from WD which had signalled a 50%+ on-quarter drop in shipments in 4Q11,' it said.

CIMB Research said however, its industry contacts indicate that WD has diverted most of its orders to JCY. JCY is also getting more enquiries from Seagate.

"We hear from other suppliers that ASPs have gone up by more than 10%. In view of these factors and JCY's better operating efficiency, we expect a significant jump in JCY's earnings in the quarters ahead,' it said.

''

HLIB Research 23 August 2011 (Mudajaya; UMLand; Maybank; JCY; Eng Tek; Traders Brief)

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD

Research House: HLG

Price Call: BUY

Target Price: 5.06

Stock Name: UMLAND
Company Name: UNITED MALAYAN LAND BHD

Research House: HLG

Price Call: BUY

Target Price: 2.87

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD

Research House: HLG

Price Call: BUY

Target Price: 10.46

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: HLG

Price Call: SELL

Target Price: 0.38

Mudajaya Group (BUY)

Janamanjung becomes official

'''' Mudajaya has signed a subcontract agreement with CMC Machipex for the design and construction of all civil works associated with the Manjung Power Plant extension project for a total contract value of RM720m. The project is expected to be substantially completed by Nov'13.

'''' The announcement indicates that the management has finally concluded the "nuts-and-bolts" of the project and is all set to commence "actual" works. This will give investors the assurance that the project would not be revoked in the last minute as it took them quite some time for the LOI to be formalised.

'''' Maintain BUY with TP of RM5.06 based on SOP valuation in view of the lucrative Indian IPP project which the market has been too pessimistic on it. The company is also trading below our ascribed construction valuation which works to RM3.70/share.

''

UMLand (BUY)

Small land acquisition in Pasir Gudang

'''' UMLand is acquiring 8.89 acres of freehold land from TCB Realty Sdn Bhd for RM18.4m.'' This works out to be RM50 psf, compared to RM48 psf for Sunway City's land in Plentong last year.''

'''' The land is located within the commercial centre of their flagship Bandar Seri Alam township in Pasir Gudang, and UMLand plans to develop a commercial retail complex with gross development cost of RM90m,

'''' We view this as a positive move to add value and stimulate sales in Bandar Seri Alam, which has more than 1,000 acres of balance landbank and close to RM3bn of balance GDV.

'''' Negligible impact for FY11-13, assuming a 2-year construction period.'' Moreover, key details such as NLA and tenant mix have yet to be determined.

'''' No change to our earnings forecasts and BUY call on UMLand; maintain target price of RM2.87 (based on 50% discount to RNAV).

''

Maybank (BUY)

Higher FY12/11 ROE KPI

'''' FY11 results in line with HLIB and consensus expectations.

'''' Final dividend of 32 sen (of which 28 sen is DRP), taking total to 60 sen (52 sen), ahead of HLIB's 45 sen forecast.

'''' Strong growth across most LOB and boosted by stronger non-interest income growth and lower provision.

'''' Loans growth accelerated with domestic now above industry.'' Deposits growth also strong but behind loans.

'''' Asset quality improved while capital ratios remained strong.''

'''' FY12/11 ROE KPI of 16% underpin by healthy economic and higher fee based income growth to more than offset NIM erosion and credit charge normalization.

'''' No change in status of BII and still no clarity on Indonesia's foreign shareholding limit.

'''' If M'sia Basel III similar to S'pore, cash call only in 2013.

'''' Target price fine-tuned to RM10.46 based on Gordon Growth. Maintain Buy.

''

JCY (SELL)

9MFY11 Wiped Out By 3Q Losses

'''' 9MFY11 losses mainly due to 3Q losses that more than offset 1HFY11 profits vs. HLIB and consensus forecasts of profits.

'''' Almost all that could go wrong went against it.'' Lower ASP, volume and US$ (vs. RM) as well as higher raw material prices, inventory provision and shortage in labour.''

'''' FY11-13 forecasts cut by 70-88% to reflect lower volume as well as higher costs.

'''' Thus, target price from RM0.70 to RM0.38 based on 20% discount to 2-year P/E average of US HDD brands.

''

EngTek (Cease Coverage)

Weaker Than Expected Results

'''' 1H11 normalised net profit of RM10.3m came in below expectations, at 23.6-24.1% of our and consensus full-year estimates of RM42.8-43.6m.

'''' Despite the weak results, we are keeping our earnings forecasts unchanged. Given the TYK Capital's offer to privatise Eng Tek at RM2.50/share (on 22 Jul 2011) is higher than our TP, earnings outlook is no longer material.

'''' TP raised from RM1.86 to RM2.50 (in line with the GO price), and we continue to advocate investors to take up the proposed GO.

'''' We are also taking this opportunity to cease coverage on the stock, given the company's bleak outlook as well as the proposed GO made by the major shareholders of Eng Tek that is likely to succeed given the attractive offer price.

''

FBM KLCI - No catalysts to trigger sustainable rebounds

'''' Given the wobbly external backdrops, the inclination to unload stocks would gather pace as Bursa Malaysia approached the holiday-shortened trading period next week coupled with weak technical indicators. Immediate resistance zones are 1500-1510.

'''' Key support levels are 1470 (the neckline support before 9 Aug's rout) and 1466 (50% FR). A breakdown below 1466 will trigger more downside risks towards 1423-1443 zones.

''

Stock to watch ' MAYBANK: Potential rebound targets at RM8.90-9.00''

'''' Based on its hourly and daily charts, technical indicators are on the mend. In the wake of improving technical landscape, as 4QFY11 results that are within expectations and a handsome RM0.32 dividend (of which 28 sen is for DRP), it is likely to charge forward in the immediate term, probably retesting RM8.90 (upper Bollinger band) and the RM9.00 territory.

'''' Supports are RM8.52 (38.2% FR) and RM8.40 (23.6% FR). Cut loss below RM8.40

''

CIMB Research retains Trading Buy on JCY

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: CIMB

Price Call: BUY

Target Price: 0.58

KUALA LUMPUR: CIMB Equities Research is retaining its TRADING BUY on hard disk drive manufacturer JCY International Bhd and target price of 58 sen (8.0 times CY12 price-to-earnings) as a gradual earnings recovery in FY12 should act as a catalyst.

It said on Tuesday, Aug 23 lower-than-expected gross margins led to a 3QFY9/11 core net loss of RM16.1 million, below its RM16.4 million profit estimate.

CIMB Research said JCY's 3Q core net loss excludes a RM15.3 million inventory write-off and RM200,000'' forex loss.

The nine-months net loss came in at RM11.9 million, short of its full-year forecast of RM64.3 million profit and consensus estimates of RM94.6m profit. Factoring in the poor results and lower margins, we now expect JCY to report a full-year net loss of RM7.8 million.

'But our FY12-13 forecasts are intact as we assume a recovery in sales and margins due to higher volumes from WD and Seagate after their mergers with HGST and Samsung, respectively, in 4Q. 'Although JCY's share price may react negatively to these results, we retain our TRADING BUY and target price of 58 sen,' it said.

JCY falls on 3Q losses, gloomy outlook

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: OSK

Price Call: SELL

Target Price: 0.39

KUALA LUMPUR: Hard-disk drive manufacturer JCY International Bhd's shares fell in active trade on Tuesday, Aug 23 after it ''posted net loss RM31.86 million in the third quarter ended June 30, 2011 compared to net profit RM55.59 million a year earlier due mainly to higher raw material prices, inventory provision from depreciating US dollar and slow moving stocks.

At 11am, JCY fell four sen to 43 sen with 4.96 million shares done.

Revenue for the quarter fell 17.8% to RM395.17 million from RM480.79 million a year ago. Loss per share was 1.56 sen compared with earnings per share of 2.72 sen.

For the six months ended June 30, JCY posted net loss RM11.89 million compared with net profit of RM198.94 million in 2010. Its revenue was RM1.23 billion compared with RM1.56 billion a year ago.

OSK Research maintained its Sell recommendation on JCY and advised investors to stay away from the stock at this juncture as its amplified earnings volatility could prove to be too much of a risk appetite to swallow given the current gloomy global economic outlook.

'Changing our valuation basis from PER to P/NTA to highlight out cautions mode, our fair value now stands at 39 sen (from 41 sen) based on 0.9 times FY12,' it said on Aug 23.

''

CIMB Research upgrades JCY to Trading Buy

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD

Research House: CIMB

Price Call: BUY

Target Price: 0.58

KUALA LUMPUR: CIMB Equities Research has upgraded hard disk drive manufacturer JCY International Bhd to a Trading Buy for gradual earnings recovery in 2012.

It said on Tuesday, Aug 16 that looking beyond the likely release of poor 3QFY9/11 results on Aug 19, it upgraded JCY from Neutral to Trading Buy as the stock is trading below its CY11 projected book value.

'Following the recent sharp decline in its share price along with the depressed market, we see value in the stock even though we scale back our target price from 72 sen to 58 sen (8 times CY12 P/E) as we cut our FY11-13 EPS forecasts by 13%-22% for lower gross margins from a weaker US$, higher wages and lower ASP,' it said.

CIMB Research said JCY should start to see the benefits of higher volume from WD's merger with HGST and Seagate's merger with Samsung in 4Q11, which should lead to a gradual improvement in earnings. This, in its view, is the main re-rating catalyst.

JCY - JCY slumps on weak 2Q earnings, but improvement ahead?

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: UBS

KUALA LUMPUR: Shares of hard disk drive manufacturer JCY International Bhd fell to 62.5 sen in afternoon trade on Thursday, May 19 on the weak earnings in the second quarter ended March 31, 2011.

At 3.44pm, it was down 2.5 sen to 62.5 sen, with 2.98 million shares done.

JCY reported net profit of RM12.5 million in 2Q (up 26% on-quarter but down 81% on-year) and RM22.3 million for 1HFY11 (down 84% on-year) from RM143.4 million in 1HFY10.

UBS Research said the H1 FY11 net profit was 31% of UBS estimates full year forecast and 17% of'' consensus estimates.

'We are expecting sequentially better numbers in 2H FY11 and thus are keeping our numbers unchanged,' it said.

It said JCY was still impacted by US dollar weakness and higher input prices. The dollar weakness, lower 2Q volumes, higher aluminium and steel prices and increased labour costs continue to depress margins although recent cost down'' initiatives have pushed margins'' on-quarter higher at 5.6% in 2QFY11 versus 3.8% in 1QFY11.

'Near term outlook remains hazy. In the results statement, management remains tentative on its earnings outlook. With the lack of visibility over PC demand recovery, and a potential shortage in the HDD component supply chain due to the Japanese tsunami, HDD output may remain weak. We have already inbuilt flat volumes into our model for 2011.

'However, JCY continues to intensify cost management initiatives and we expect to see the impact of the better control efforts and increased productivity flow through in subsequent quarters, thus sequential earnings improvement,' it said.

UBS Research said it had a 12-month price target of 70 sen 'based on a DCF methodology on a COE of 10.8%. Our price target implies PE of 20.1x and 8.4x for FY11 and FY12 respectively'.

''

JCY - JCY declines after 2Q net profit slump

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: OSK

KUALA LUMPUR: JCY International Bhd shares declined in early trade on Thursday, May 19 after its net profit for the second quarter ended March 31, 2011 slumped 81% to RM12.46 million from RM65.88 million a year ago.

At 9.30am, JCY was down 1.5 sen to 63.5 sen with 614,100 shares traded.

The decline in earnings were due mainly to increase in the cost of production resulting from increase in the cost of raw materials like aluminium and stainless steel and also increase in labour cost.

JCY's revenue for the quarter fell 27.7% to RM397.43 million from RM549.69 million. Earnings per share were 0.61 sen while net assets per share was 43.08 sen.

For the six months ended March 31, JCY's net profit tumbled to RM19.97 million from RM143.36 million, while revenue fell to RM836.34 million from RM1.08 billion in 2010.

OSK Research maintained its sell recommendation on JCY and slashed its fair value to 41 sen from 58.5sen.

The research house said JCY's 1HFY11 earnings of RM20 million were way below market consensus and its forecast, comprising only 15.3% and 15.1% of the estimates respectively.

'Taking an increasingly conservative stance as a result of the dismal showing, we cut our FY11 topline estimate by 9.1% and correspondingly our FY11 EPS sinks by 29.4%.

'We think flattish industry growth, unfavorable forex and escalating raw material prices will continue to exert downward pressure on earnings,' it said on May 19.

''

JCY - CIMB Research has Buy on JCY at 65 sen

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has a technical Buy on JCY International at 65 sen at which it is trading at a FY12 price-to-earnings of 7.6 times and price-to-book value of 1.5 times.

It said on Tuesday, May 10 JCY broke out of its long term bullish wedge pattern in late March and prices hit a high of 83 sen.

CIMB Equities Research prices have since eased and it had retraced to its 61.8%FR levels while it formed a hammer-like candle on Monday.

'We do not expect prices to move too far from its 61.8%FR levels as its MACD and RSI are turning sideways now, possibly suggesting a slowdown in selling momentum.

'Aggressive traders may go long now with a stop placed below the recent swing low of 57.5 sen. A break above 68.5 sen would likely be a good signal to suggest that a new rally has begun. We expect prices to take out the old high of 83 sen in the short to medium term. Remain positive on the stock,' it said.

JCY - More tsunami woes for HDD parts

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: OSK

Technology sector
Maintain underweight: Japanese hard disk drive (HDD) component makers, including hard disk media maker Showa Denko (SDK) and HDD-use substrate makers Furukawa Denko and Kobe Steel, have all reported damage to facilities as well as injuries to their employees due to the earthquake and tsunami on March 11.'' Certain facilities have since resumed operations but production volume is likely to be limited due to constraints in electricity, raw materials and fuel supply.

SDK is the world's second largest hard disk media maker by volume behind Western Digital (WD), with about 25% global market share. It fabricates 22 million disks a month with production facilities in Singapore, Taiwan and Japan. Operations at its sites in the Tohoku and Kanto regions were suspended from March 14 to 16.

Certain facilities have since resumed operations but the group says production volumes are likely to be limited for the time being due to various constraints. We understand that SDK is discussing shipment schedules with individual customers, and the potential production shortfall at its plants in Japan would be mitigated by capacity expansion at its Singapore facilities (monthly output to increase 13.6% to 25 million disks).

We do not see significant earnings risks for HDD component manufacturers under our coverage given that major HDD makers such as WD, Seagate and Hitachi (with a combined global market share of 80%) rely mostly on their respective in-house hard disk media production, with each producing approximately 80% to 90% of their own requirements.

Eng Teknologi Sdn Bhd ('neutral', fair value: RM1.73), JCY HDD Technology Sdn Bhd ('neutral', FV: 58 sen) and Notion VTec Bhd ('neutral', FV: RM1.85) all have minimal exposure at less than 7% contribution of their revenue from smaller manufacturers such as Toshiba and Samsung, which typically outsource more than 70% of their hard disk media production to third-party component makers like SDK and Fuji Electric.

Nonetheless, we do not discount the potential downgrade to our earnings forecasts should the disruption prolong as we opine that the top three HDD makers would not have instantly available capacity to absorb the potential shortfall in SDK's hard disk drive media production over the long run.

But disruption at Furukawa Denko and Kobe Steel could prove costly. Furukawa Denko and Kobe Steel together dominate the entire HDD-use aluminum substrate market with a more than 95% global market share. Their substrate plants are located in Tochigi, Japan with Kobe Steel capable of producing 30 million and Furukawa Denko at 20 million units a month. Operations at Kobe Steel's Monka substrate plant have resumed, with management confirming that its facilities sustained no damage although it conceded that production is likely to be affected due to limited electricity supply. Meanwhile, restoration is progressing at Furukawa's plant as damaged equipment is replaced and production facilities repaired.

Given the de facto duopoly posed by these 2 HDD-use substrate manufacturers, we opine that a protracted disruption in production would likely spark an industry-wide substrate shortage, which would lead to lower output for most HDD makers.

The restoration timeline to resume full production remains uncertain at this juncture, but early indications are that the going is more negative end as power supply remains a major concern.

On a relative basis, JCY has the highest earnings downside exposure given its full-fledged HDD component production while its peers Notion Vtec and Engtek have more diversified earnings, with the camera division contributing more than 45% to the former's revenue while the latter's presence in industrial products and original design and contract manufacturing may provide a buffer to any earnings shortfall from its HDD division.

Nonetheless, we maintain our earnings forecasts and valuation basis for now, pending more affirmative indications from'' Japanese manufacturers. Downgrades to our recommendations are likely if operating conditions deteriorate further on a less conducive production environment.

We believe that any potential earnings disappointments in the coming quarters as well as moderating industry growth would continue to dampen sentiment. Manufacturers involved in the semiconductor and HDD industries would have difficulty matching their sales performance in 1Q10, during which they performed remarkably well in a traditionally weak period riding on the economic rebound in 2H09.

Hence, given the lack of a re-rating catalyst over the near term with valuations nowhere near their trough, we reiterate our 'underweight' call on the sector. ' OSK Research, March 24


This article appeared in The Edge Financial Daily, March 25, 2011.

JCY - Notion VTec rallies, JCY ekes out marginal gains

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: RHB

KUALA LUMPUR: Shares of Notion VTec and JCY International, whose shares had come under heavy selling last year over the weaker outlook for the hard disk drive market, managed to post some gains in late afternoon on Friday, Jan 7.

At 4.37pm, Notion was up 22 sen to RM1.92 while JCY added 1.5 sen to 85 sen.

The 30-stock FBM KLCI rose 1.98 points to 1,570.35. Turnover was 2.36 billion shares valued at RM3.07 billion. Gainers beat decliners 491 to 360 while 294 stocks were unchanged.

In a recent report, RHB Research said it was maintaining its underweight call on the semiconductior sector. It also kept its fair value for Notion at RM1.68 and JCY at 64 sen.

It said although November chip sales continued to rise 14.4% on-year to US$26 billion, the pace of growth continued to fall after registering 19.8% on-year in October and peaking 58.4% on-year in March.

"Nevertheless, we believe this is tandem as chip players look to cut back production to optimise stock levels as inventory levels have been rising due to combination of weaker-than-expected demand as well as post-festive seasons," RHB Research said.