Analysts cautious on billionaire's hard-disk drive maker JCY International
WHEN news that low-key Malaysian billionaire Yong Yoon Kiong's company JCY International Bhd was to be listed on Bursa Malaysia first hit the market back in 2006, there was a lot of excitement.
Not only was the hard-disk drive maker going to be the largest technology firm ever listed on Bursa, it was also supposed to be the biggest initial public offering (IPO) for South-East Asia in many years.
The listing however did not materialise that year.
JCY, which is one of the world's major suppliers to the two global hard-disk drive giants, Western Digital and Seagate Technology Inc, finally made its long-awaited debut on the local bourse on Feb 25 this year. But if its share price performance thus far and latest financial results are anything to go by, it is quite safe to say that JCY has not lived up to market expectations.
The stock has shed close to 50% of its price since its listing to settle 78 sen on Friday, which was also the lowest. In contrast, the benchmark FTSE Bursa Malaysia KL Composite Index has put on more than 18 % in the same period.
Against its high of RM1.98 achieved on May 3, the stock is trading at a 60% discount. For its IPO, JCY had set the institutional offer price at RM1.60, while the retail portion was priced at RM1.52. For its latest quarter ended Sept 30, JCY incurred a net loss of RM22.56mil against a net profit of RM73.5mil made a year ago, largely on rising expenses and foreign exchange losses. Observers noted that there could be shareholders selling out and some could even be doing so below their IPO prices because of the lower entry cost.
JCY finance executive director James Wong was quick to point out that these issues should not be too much of a concern.
Malaysian investors do not understand tech stocks; you've got to be in for the long-haul, he told StarBiz.
When times in an industry like ours become challenging, we restructure, we adapt and we come off stronger.
The company is working on its labour issues where in the latest quarter, it had incurred an additional RM8mil in workers' salaries due to manpower shortage that resulted in some operations being outsourced and pay rise for the local workers.
We plan to shift some of our labour-intensive operations to China where labour is much cheaper, Wong said.
It currently has about 16,000 workers at its factories in Johor Baru and Penang. Wong said Western Digital had guided for a disappointing December quarter while the March quarter was traditionally a weak one for the industry.
But demand will come back, it always does. We've been in this business for a long time, we understand the cycles, he noted.
JCY has started supplying its components to South Korean and Japan customers to counter the weak demand from its Western customers that are still struggling to surface from the economically challenging times although the impact on bottomline is not expected to be felt so soon, according to Wong. Wong also noted that to his knowledge no major shareholders were selling their stakes in the firm. He added that Yong, the founder of the firm, still held close to 75% stake in JCY.
When the company was listed, some market observers pointed out that valuations were far too high. JCY's IPO was priced at a historical price-earnings (PE) multiple of 15 times when stocks in such an industry which is considered highly cyclical usually trade at PEs of less than 10 times.
Granted, JCY was priced before the acceleration of concerns of a double-dip in the United States, a major customer for the company.
Meanwhile, following the latest results of the firm, some analysts have turned cautious on JCY. In recent notes to clients, analysts said higher wages, shortage of workers, unfavourable foreign exchange rates and high raw material prices would continue to remain challenges for the firm for some time.
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