CIMB Research has Outperform on JCY, target price RM2.68

Written by CIMB Equities Research
Monday, 19 April 2010 08:45

KUALA LUMPUR: CIMB Equities Research has initiated coverage of JCY, one of the most profitable and biggest hard disk drive (HDD) mechanical component makers in the world, with an OUTPERFORM and RM2.68 target price.

It said on Monday, April 19 that its target price was based on 12x CY11 P/E. JCY should trade at least close to the current 13.5x CY11 P/E for the KLCI and a premium over the average 11x CY11 P/E for its global peers (range of 4-18x) given its healthy earnings prospects, above-industry returns and size as well as decent dividend yields.

“Our 12x 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.

CIMB Research said size matters when industry consolidates further. JCY is one of the most profitable and biggest HDD mechanical component makers in the world.

Given its size and financial strength, we believe it can remain relevant even if this highly competitive industry consolidates further.

Another key strength of JCY is its ability to supply multi-components to customers. HDD OEMs are showing an increasing preference for such suppliers as they would only need to deal with a small pool of suppliers, thereby ensuring faster time-to-market and producing cost savings.

“We project a net profit CAGR of 34% and ROEs averaging 36% for FY9/09-12, underpinned by continuous volume growth and positive operating leverage. Global HDD shipments are projected to rack up a CAGR of 12% in 2009-12, driven largely by strength in mobile and consumer electronics drives.

“JCY plans to pay out as much as 50% of its net profits in dividends. Based on our net profit forecasts and assuming a 50% payout, dividend yield is estimated at 5-7% for FY10-12,” it said.