Thursday, May 19, 2011

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

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'.


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