‘Hard’ times over for JCY International

The company’s executive director Datuk James Wong (pic) tells StarBizWeek that there has been a huge rise in demand for HDD as the Covid-19 pandemic pushed many to work remotely, increasing the demand for cloud storage (enterprise HDD).

HARD disk drive (HDD) maker, JCY International Bhd, has been thrust into the limelight with a sharp turnaround in fortunes, thanks to the work-from-home phenomenon.

The company’s executive director Datuk James Wong (pic) tells StarBizWeek that there has been a huge rise in demand for HDD as the Covid-19 pandemic pushed many to work remotely, increasing the demand for cloud storage (enterprise HDD).

“The outlook over the next six months is quite good. I believe we are still undervalued. Based on the orders that we have, we think we will do quite well, ” Wong says.

“There is some industry-wide consolidation happening while we are also seeing more demand from the enterprise HDD segment. At the peak of demand back in 2010, we looked at over 600 million HDDs in the total addressable market, ” he adds.

He notes that the HDD industry today is vastly different from many years ago because capacity storage has increased exponentially.

“Back then, a drive was only about 250 megabytes. But now the drives are one or two terabytes (TB), while the higher performance capacity for enterprise usage is 16-18TB.

“Now, a drive is equivalent to almost 14 or 16 drives of the past and this means more parts have to be manufactured, ” Wong says.

JCY’s turnaround comes after the loss-making years of 2019 (financial year 2019 or FY19 ended Sept 30) and FY18.

“The losses we saw in FY18 and FY19 were artificial losses due to provisions on changes in accounting standards.

“These impairments were incurred due to underutilised capacity then, ” he says.

“Now, my machines are fully utilised and we also have to invest in new machines. Therefore, I can write these (impairments) back.

“Our cash position is still very strong and continues to get stronger, ” Wong adds.

In its most recent third quarter, the company reported a net profit of RM3.14mil from a net loss of RM26.36mil a year ago, with revenue rising 6.36% year-on-year (y-o-y) to RM227.04mil.

“There will be writebacks. If I write back 100%, then there will be a big jump in profits but I will not do that.

“Maybe only 50% of what was written off (then), ” Wong says.

He sees demand sustaining in the near future with newer IT technologies such as cloud computing, contact tracing and 5G.

“All these data will need to be stored somewhere. There are two choices available in the market now: HDD or solid state drives (SSD). But SSD is very expensive and costs about 10 times more for a company that wants to set up cloud computing data centres, ” Wong says.

The main HDD players in the market are Western Digital, Seagate and Toshiba.

Wong says demand for HDDs is also being driven by the rise in state surveillance, mainly due to China, as these surveillance data in the form of video and pictures need to be stored, if they are to be retrieved at a later time.

Commenting on the industry, he says there is some consolidation happening, as some competitors have been unable to deliver due to the shortage in the market.

“Therefore, we have cannibalised part of the market share.

“There has been a slight increase in selling prices also, ” he says.

Kenanga Research, in its report issued on Wednesday, says that JCY’s two major customers which contribute to more than 80% of its sales had seen HDD demand volume shipment in the last six months (in terms of Exabyte) jumping 47% y-o-y and 21% y-o-y, respectively.

“Both customers are guiding a strong ramp-up in the second half of 2020 because of increased demand for 14TB drives, as well as the upcoming 16TB and 18TB drives, ” Kenanga Research says.

It adds that JCY is realigning its production plant and bringing in new equipment to cater for the increase in components: actuator arm and disc separation plates, to cope with the rise in orders.

Kenanga is expecting JCY’s net profit for FY21 to triple to RM150.8mil, as the group takes on a higher loading volume in the second half of 2020 and into 2021.

It has rated JCY a trading buy with a fair value of RM1.35 based on 18.7 times the FY21 estimated price-to-earnings ratio, which is in line with its three-year mean.

JCY’s turnaround in fortunes seems to have caught everyone by surprise and it is truly one of the unanticipated beneficiaries of the ongoing Covid-19 pandemic.

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