JCY (5161) - JCY International - Proxy to content storage growth
NOT RATED
Following a strong earnings recovery in FY14, JCY management is upbeat on the company’s growth prospects, given its plans to invest in automation and expand market share through M&A activities, as well as rising content storage demand. Moreover, Seagate’s expansion plan in Malaysia is a potential game-changer for JCY. We expect moderate HDD shipment growth, easing ASP erosion pressure and the strengthening US$ to drive HDD component’s manufacturer earnings growth in FY15. Based on its guided net profit, JCY’s CY15 P/E is 8x, a 27-52% discount to its peers and HDD OEMs customers.
We expect moderate HDD shipment growth, easing ASP erosion pressure and the strengthening US$ to drive HDD component’s manufacturer earnings growth in FY15. Based on its guided net profit, JCY’s CY15 P/E is 8x, a 27-52% discount to its peers and HDD OEMs customers.
Rising enterprise storage demand
Although we foresee mixed outlook for HDD shipments in 2015, we think that data storage requirements will continue to rise, driven by enterprise HDD storage demand. Trendfocus expects total global storage demand to expand by 16.4% CAGR in 2014-2019. Furthermore, strong cloud traffic growth is expected to be driven by from applications such as video and audio-streaming applications. Overall, we expect robust cloud storage growth to spur future HDD storage demand.
Looming industry consolidation
We expect the likely consolidation among the HDD component manufacturers to boost industry profitability, given that a few of HDD components manufacturers are still struggling to recover from the devastating floods in Thailand. Considering its strong balance sheet, prudent cash management and years of experience, JCY intends to take advantage of potential M&A activities to increase its market share and improve margins via better economies of scale.
Improving operating efficiency
JCY plans for capex of RM200m-300m over the next five years as part of its strategy to improve operating efficiency and increase automation. Management aims to gradually reduce group employee headcount by 5,000 (30% of current total) from 18,000 currently to 13k over the next 3-5 years. We understand that this could reduce its labour costs currently from 27% of total operating costs to less than 20%.
Easing ASP pressure
Trendfocus expects HDD ASPs to rise by 2% in 2015 due to the higher average capacity per drive. This should help JCY’s end-customers WD and Seagate to enjoy greater margin expansion this year. Thus, reducing ASP erosion pressure for JCY.
Source: CIMB Daybreak - 13 April 2015
NOT RATED
Following a strong earnings recovery in FY14, JCY management is upbeat on the company’s growth prospects, given its plans to invest in automation and expand market share through M&A activities, as well as rising content storage demand. Moreover, Seagate’s expansion plan in Malaysia is a potential game-changer for JCY. We expect moderate HDD shipment growth, easing ASP erosion pressure and the strengthening US$ to drive HDD component’s manufacturer earnings growth in FY15. Based on its guided net profit, JCY’s CY15 P/E is 8x, a 27-52% discount to its peers and HDD OEMs customers.
We expect moderate HDD shipment growth, easing ASP erosion pressure and the strengthening US$ to drive HDD component’s manufacturer earnings growth in FY15. Based on its guided net profit, JCY’s CY15 P/E is 8x, a 27-52% discount to its peers and HDD OEMs customers.
Rising enterprise storage demand
Although we foresee mixed outlook for HDD shipments in 2015, we think that data storage requirements will continue to rise, driven by enterprise HDD storage demand. Trendfocus expects total global storage demand to expand by 16.4% CAGR in 2014-2019. Furthermore, strong cloud traffic growth is expected to be driven by from applications such as video and audio-streaming applications. Overall, we expect robust cloud storage growth to spur future HDD storage demand.
Looming industry consolidation
We expect the likely consolidation among the HDD component manufacturers to boost industry profitability, given that a few of HDD components manufacturers are still struggling to recover from the devastating floods in Thailand. Considering its strong balance sheet, prudent cash management and years of experience, JCY intends to take advantage of potential M&A activities to increase its market share and improve margins via better economies of scale.
Improving operating efficiency
JCY plans for capex of RM200m-300m over the next five years as part of its strategy to improve operating efficiency and increase automation. Management aims to gradually reduce group employee headcount by 5,000 (30% of current total) from 18,000 currently to 13k over the next 3-5 years. We understand that this could reduce its labour costs currently from 27% of total operating costs to less than 20%.
Easing ASP pressure
Trendfocus expects HDD ASPs to rise by 2% in 2015 due to the higher average capacity per drive. This should help JCY’s end-customers WD and Seagate to enjoy greater margin expansion this year. Thus, reducing ASP erosion pressure for JCY.
Source: CIMB Daybreak - 13 April 2015
