KUALA LUMPUR: Investing interest may return to smaller hard disk drive (HDD) component makers after recent earnings results from JCY International Bhd, as well as Western Digital Corp and Seagate Technology in the US topped analysts’ expectations, implying a more positive outlook on the sector.
Ironically, the devastating floods in Thailand which disrupted the global supply chain of HDDs have created an opportunity for the industry. From excess inventory and falling prices amid keen competition from existing players and the threat of solid state drives (SSD), the HDD industry is now witnessing supply shortages and higher prices. Companies like Dufu Technology Corp Bhd, Eng Teknologi Holdings Bhd (EngTek) and Notion VTec Bhd, which supply smaller HDD components that benefited less after the Thai floods, may see investor interest return as the outlook on the sector improves. However, analysts also note that they are unlikely to see a large increase in profit on a scale similar to JCY.
JCY reported a 20-fold increase in net profit to RM162.45 million for 1QFY12 ended Dec 31, from RM7.5 million a year earlier. Revenue also grew 27% to RM559.04 million from RM438.9 million. Its share price has risen 18% year-to-date (YTD).
Apart from the Thai floods which inundated the factories of other competitors, JCY finance director James Wong cited internal measures to increase output and reduce costs as a contributor to its performance.
“If the floods did not happen, I think we could have recorded 50% of our net profit for the quarter due to our internal efficient cost measures,” Wong told The Edge Financial Daily.
Industry observers attributed JCY’s commendable performance to its ability to capitalise on the supply chain disruption which saw demand for two of the larger HDD component parts — base plates and actuators — spike as their manufacturers in Thailand were flooded.
JCY, which supplies to Seagate and Western Digital, was able to secure contracts for these larger components at relatively high prices.
Be that as it may, positive earnings announcements at the end of last month by Seagate and Western Digital, which reported “substantial progress” in the recovery from the flooding, suggest the outlook for the industry is improving.
Seagate’s share price has risen 62% and Western Digital’s 26% YTD. Unlike Western Digital, Seagate was not directly affected by the floods and saw its profit surge as HDD prices increased. Seagate managed to quadruple its net profit to US$563 million (RM1.7 billion) for the quarter ended Dec 30, 2011 on the back of increased revenue of US$3.2 billion. Although hit by the floods, Western Digital’s earnings fell but were still better than expected.
In a statement on Jan 23, Western Digital president and CEO John Coyne said supply remained significantly constrained, adding that this will persist throughout 2012 with improvement during the year.
EngTek, Notion VTec and Dufu will announce earnings results in the next few weeks. Notion will announce its results on Feb 20, while EngTek traditionally releases its results in the third week of February and Dufu the fourth. YTD, Notion’s shares are up 15%, while Dufu has risen 4.5% and Engtek 8.2%.
In an announcement to Bursa Malaysia last Friday, Notion VTec updated its progress on the cleaning up of its Ayutthaya, Thailand, plant and indicated confidence in its prospects for the year.
“The Group’s business outlook has turned for the better with a strong recovery in January 2012 sales to much higher than pre-flood levels. The trend is expected to be upwards for the remainder of the financial year ending Sept 30 and beyond, as the HDD segment is expected to be in short supply until mid-2013 due to a backlog of orders,” it said.
“The average selling price of HDD is expected to remain above pre-flood levels for multi-quarters ahead,” Notion said.
“With the entrance of three new major Japanese customers in the HDD segment and the ramp-up in HDD component sales, we expect FY2012’s revenue to grow in strong double digits over FY11. The sustainability of this new business is expected to be good as the customers’ commitment is assumed to be long term,” it added.
The group expects camera orders to remain robust from this month as the camera segment is expected to be en route to full pre-flood operations by March, while its auto and industrial segment remains stable.
This article appeared in The Edge Financial Daily, February 15, 2012.
Ironically, the devastating floods in Thailand which disrupted the global supply chain of HDDs have created an opportunity for the industry. From excess inventory and falling prices amid keen competition from existing players and the threat of solid state drives (SSD), the HDD industry is now witnessing supply shortages and higher prices. Companies like Dufu Technology Corp Bhd, Eng Teknologi Holdings Bhd (EngTek) and Notion VTec Bhd, which supply smaller HDD components that benefited less after the Thai floods, may see investor interest return as the outlook on the sector improves. However, analysts also note that they are unlikely to see a large increase in profit on a scale similar to JCY.
JCY reported a 20-fold increase in net profit to RM162.45 million for 1QFY12 ended Dec 31, from RM7.5 million a year earlier. Revenue also grew 27% to RM559.04 million from RM438.9 million. Its share price has risen 18% year-to-date (YTD).
Apart from the Thai floods which inundated the factories of other competitors, JCY finance director James Wong cited internal measures to increase output and reduce costs as a contributor to its performance.
“If the floods did not happen, I think we could have recorded 50% of our net profit for the quarter due to our internal efficient cost measures,” Wong told The Edge Financial Daily.
Industry observers attributed JCY’s commendable performance to its ability to capitalise on the supply chain disruption which saw demand for two of the larger HDD component parts — base plates and actuators — spike as their manufacturers in Thailand were flooded.
JCY, which supplies to Seagate and Western Digital, was able to secure contracts for these larger components at relatively high prices.
Be that as it may, positive earnings announcements at the end of last month by Seagate and Western Digital, which reported “substantial progress” in the recovery from the flooding, suggest the outlook for the industry is improving.
Seagate’s share price has risen 62% and Western Digital’s 26% YTD. Unlike Western Digital, Seagate was not directly affected by the floods and saw its profit surge as HDD prices increased. Seagate managed to quadruple its net profit to US$563 million (RM1.7 billion) for the quarter ended Dec 30, 2011 on the back of increased revenue of US$3.2 billion. Although hit by the floods, Western Digital’s earnings fell but were still better than expected.
In a statement on Jan 23, Western Digital president and CEO John Coyne said supply remained significantly constrained, adding that this will persist throughout 2012 with improvement during the year.
EngTek, Notion VTec and Dufu will announce earnings results in the next few weeks. Notion will announce its results on Feb 20, while EngTek traditionally releases its results in the third week of February and Dufu the fourth. YTD, Notion’s shares are up 15%, while Dufu has risen 4.5% and Engtek 8.2%.
In an announcement to Bursa Malaysia last Friday, Notion VTec updated its progress on the cleaning up of its Ayutthaya, Thailand, plant and indicated confidence in its prospects for the year.
“The Group’s business outlook has turned for the better with a strong recovery in January 2012 sales to much higher than pre-flood levels. The trend is expected to be upwards for the remainder of the financial year ending Sept 30 and beyond, as the HDD segment is expected to be in short supply until mid-2013 due to a backlog of orders,” it said.
“The average selling price of HDD is expected to remain above pre-flood levels for multi-quarters ahead,” Notion said.
“With the entrance of three new major Japanese customers in the HDD segment and the ramp-up in HDD component sales, we expect FY2012’s revenue to grow in strong double digits over FY11. The sustainability of this new business is expected to be good as the customers’ commitment is assumed to be long term,” it added.
The group expects camera orders to remain robust from this month as the camera segment is expected to be en route to full pre-flood operations by March, while its auto and industrial segment remains stable.
This article appeared in The Edge Financial Daily, February 15, 2012.
