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Sunday, January 24, 2016

(fayeTan) JCY (2) - 13% dividend yield, 8.5x PE, HDD sector bottoming.

(fayeTan) JCY (2) - 13% dividend yield, 8.5x PE, HDD sector bottoming. WHERE TO FIND SUCH STOCK?

Author: fayeTan | Publish date: Thu, 21 Jan 2016, 11:43 AM

1. 13% dividend yield stock, where to find? With the latest share price of RM0.765 and my estimate of dividend of 10 sen for FY16, the dividend yield expected for the stock has now increased to 13%. My assumption is already conservative as JCY paid 3.0 sen dividend in the last quarter. In case the Company announce another 3.0 sen in Feb-2016, the market should look at 12.0 sen dividend for FY16 or 16% dividend yield! This is the SUPER MARGIN OF SAFETY as your chances of making loss is significantly reduced. In short, 13% of your investment is sort of protected by the dividend. If you are not convinced enough, let me highlight the fact that JCY has consistently paid dividend for the past 8 quarters.



2. Super low PE of 8.5x. Comparing share price of 76.5 sen against my FY16 estimated core EPS of 9.04 sen, JCY looks super undervalued to me. Look at DUFU which has smaller market cap and lower dividend yield, it is trading at 14x PE! Other export counters which benefit from higher USDMYR easily trades at 10x PE. In short, the market has likely to undervalue the Company.

3. Hard disk (HDD) sector outlook has probably reach its bottom. Refer to Page 11 of JCY latest quarterly result, it says "Estimates for Total Addressable Market (“TAM”) for Hard Disk Drive (“HDD”) indicate a modest increase in last quarter, although it is expected to remain largely flat for the next few quarters. Recent developments within the industry group include new strategic investment in HDD manufacturers, and the announcement of a new major data center storage initiative in China. With these, it is expected that the outlook for HDDs will remain favourable in the near future." While you can say the Company of course will tell you nice story, you can refer to another article by Daz Ng athttp://klse.i3investor.com/blogs/genetec/83785.jsp

4. 8 reasons why Daz Ng think that HDD sector are NOT in secular decline:
i) Information creation continues to grow and the need for storage grows along with it
ii) HDDs are the lowest priced storage medium.
iii) Cannibalization of mobile is partially offset by growth in Cloud storage.
iv) Hybrid drives could be a realistic competitor to Flash in certain mobile applications.
v) Desktop PCs, are not dead yet, exhibiting very modest growth.
vi) There is simply not enough Flash capacity in the world to cannibalize 100% of HDD supply.
vii) The cost of adding new greenfield Flash capacity is prohibitively expensive.
viii) The threat of virtualization has already occurred.

5. Enough said, Target Price is RM1.08 to RM1.36. Short term Target Price: RM1.08, Long term: RM1.36. Key assumptions are:
i) HDD sector already bottom with maximum volume reduction of 5% seen for FY16
ii) USDMYR to stay above 4.30
iii) The recent bearish sentiment from DJIA should have stopped and DJIA supported at above 15750 points. As the time of writing, DJIA FUTURES is up 128 points indicating that it should go up tonight more than 100 points!

6. BUY and SELL at your own risk. I make this observation as my part time interest. It is NOT A BUY recommendation. Do your own research before any investment.

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