JCY, Every Dog Has Its Day In The Sun

I am serious, I was writing about JCY at 10am, still gathering information and the stock is running as I write. So I have to be very quick on this. Sometimes you can be so bad, or your price is so bad, that you can be good for a while. The stock should be running based on two major factors:



a) Privatisation - If you remember their IPO price, it has lost more than RM1.10-1.20 from its IPO levels. VCs have been knocking on their doors, especially over the last few weeks as the Euro crisis hit its peak bringing JCY to below 40 sen albeit briefly.

 HDD players valuations as follows:

Notion at 1.3x P/B;

Dufu at 0.5x; and

JCY at 1.3x P/B.

Historical M&As for HDD Component Manufacturers
Acquiree		Acquirer		Date		USD (m)		P/B
Unisteel		KKR		Jun-08		785.0		6.1
Seksun		Supernova		Oct-07		295.0		2.1
Magnecomp		TDK		Aug-07		166.0		1.8
Amtek		CVC		May-07		353.0		1.7
MMI		KKR		Apr-07		666.0		4.0
Brilliant		Nidec		Nov-06		195.0		1.9
							Avg	2.9

The Notion deal was scuttled as owners were rightly asking for a better valuation. The average done deal was 2.9x P/B although most were done prior to the subprime implosion. However, profits are profits. Notion had a strong case as its not a pure HDD player anymore, with better margins coming from their camera business and a strong link up to Nikon. Naturally, JCY has the right size to be an attraction to big VC players in HK.


A privatisation deal could be easily agreed as the controlling shareholders has 74% (YKY).


b) Supply chain disruption - This has more credence. I had been asking around for the past few hours and the Thailand flood situation is very bad. At first, most thought that it was a minor thing and any interruption would be temporary. As you dig deeper, you will find that the situation is quite bad. In fact, anecdotal comments has it that the situation was a lot worse for HDD players operating there than the impact from the nuclear/tsunami in Japan.


I am very shocked that no analyst had grabbed onto the situation and analyse further. The worst affected is Western Digital. This is critical as the affected supply of HDD is enormous. Apparently early estimates had it that Western Digital will be writing off RM6bn-RM8bn from the Thailand situation.


Put it in a more meaningful context: a huge portion of the production of HDD is located in the very area worst hit by the floods in Thailand. Industry sources indicated that at least 30%-35% of the GLOBAL PRODUCTION of HDD has been halted ... I will give you 10 seconds to re-read the last sentence again.


As with the headline, JCY's Thai operations was not affected, in fact, they now have ample spare capacity to take up some of the slack. Players have indicated that customers are now "scrambling madly" for their orders to continue at premium prices. JCY is a prime beneficiary.



Notion's Thai factory is affected but thankfully its Klang operations has some spare capacity plus their camera side is still doing well. Eng is badly hit, insurance does not cover profits lost.


c) Circumstantial positives - JCY should start to benefit from a gradual improvement in volume from its two major customers ... wait for it, yes its Seagate and Western Digital. Western Digital's recent merger with HGST and Seagate's merger with Samsung actually now propels JCY onto the "gap to be filled". JCY's teething problems with their Guangdong now looks to be a huge blessing for JCY.


d) Out of the Loop - Look at the factors surrounding JCY ... its a totally different element when you look around you: Euro-crisis, China slowing, ECB stalling, Fed not knowing what to say, Malaysia GE13, etc... JCY is in the "zone" as they say, untouchable (for now..lol).





Look at the chart, the stock has not seen daylight ... ever. The recent whack down from 55 sen to below 40 sen was thanks to the Euro situation. Even the Thailand floods did NOT see any strong buying .... TILL TODAY. I guess I am not the only one digging deep enough. 60 sen-66 sen seems easy.



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