KUALA LUMPUR: Kenanga Research expects JCY International Bhd's earnings to triple next year as its benefit from the massive upcycle in the hard disk drive (HDD) market.
The firm said the recent surge in web computing was just the beginning of a long-term secular demand for mass capacity storage, with total addressable market (TAM) estimated to rise from the current market size of US$12.5 billion to US$24 billion in 2025.
"We like JCY International for being a close proxy to the massive upcycle in the HDD market due to data centre expansion, able to enjoy higher order volume and average selling prices (ASP) owing to supply chain consolidation, and proactive in diversifying revenue stream by venturing into the automotive market.
"The group's net profit in financial year 2021 is expected to grow three times to RM150.8 million as it takes on higher loading volume in the second half of 2020 and into 2021," Kenanga Research said in a report today.
The firm said due to the sudden rise in traffic and bandwidth demand since the Covid-19 lockdown, JCY International was experiencing a huge burst in data centre development.
JCY International's volume of HDD shipment in the last six months (in terms of exabyte) had jumped 47 per cent year on year (YoY) and 21 per cent YoY respectively.
"Both customers are guiding a strong ramp-up in the second half of 2020 owing to robust demand for 14TB drives as well as the upcoming 16TB and 18TB drives."
Kenanga Reserach said although current HDD prices had risen 16 per cent over the same period last year, JCY International still remains the preferred storage medium due to cost factor.
"In comparison, a solid-state drive (SSD) of the same volume cost 9-10 times more than that of HDD.
"From an economical standpoint, we believe that HDD will continue to dominate the data centre space for the next decade," it added.
Kenanga Research has a trading buy call on JCY International with a fair value of RM1.35 based on 18.7 times financial year 2021 earnings price earnings ratio, in line with its three-year mean.