In this update, we are highlighting the fact the 6-month moratorium on the company’s IPO shares ended last month. While JCY’s shares have fallen by about 30% from the IPO price, which we believe is mainly due to an unattractive offer price and disappointing results, our Neutral stance is maintained on the back of potential
earnings disappointments for the next 2 quarters. Meanwhile, its share price is expected to be supported by the decent projected 6% FY10 net dividend yield.
Moratorium on shares ends. In accordance with SC guidelines, JCY’s promoter and shareholder, YKY Investments, was not allowed to sell, transfer or assign its remaining 1.5bn shares representing 74.1% shareholding in JCY held under moratorium for a period of 6 months from the listing date of 25 Feb 2010. This means the moratorium period officially ended in August.
25.9% stake sold in IPO. In our view, what made JCY’s IPO particularly interesting was not because it was the 2nd biggest IPO on Bursa in 6 years at the time but that it was a pure offer for sale IPO. YKY Investments, which held 100% equity interest in JCY before the IPO, was wholly owned by Mr. YK Yong, who has transformed JCY into one of the world’s largest HDD components manufacturers. Mr. Yong is neither a director in JCY nor in the management team, although his brother, Mr. Yong Yong Chai, is ED of Strategic Planning. As it was a pure offer for sale, we thought it worth highlighting that the moratorium on the IPO shares ended last month.
Shares to be supported by decent dividend yield. JCY is now trading at some 30% below its IPO price, which gives a projected 6% FY10 net dividend yield at the current share price. JCY has declared a 3.9 sen single-tier exempt interim dividend for 2QFY10. It does not have a dividend policy but management has indicated that the company’s strong balance sheet gives it the financial flexibility and capacity to fulfill up to a 50% dividend payout ratio.
We expect JCY to pay another 2 sen single-tier exempt dividend to bring the FY10 dividend payout ratio to 48%. 4QFY10 numbers to lack spark. At JCY’s second analyst briefing since its IPO, management again did not provide a q-o-q revenue growth guidance for 4QFY10. However, we expect JCY’s earnings to face challenges similar to those in the previous quarter, such as a labor supply shortage and unfavorable forex rates. Western Digital’s revenue guidance for 3Q10 is also not so positive (please refer to Appendix for details). In addition, based on latest guidance from rival Engtek, which also has Western Digital as its biggest customer, revenue in the September quarter should be down 3.5% q-o-q.