Financial Commentary – JayCorp Berhad (Jan 17)

Uncertainty surrounding the post-trump trading outlook has weakened the attractiveness of JayCorp. Our understanding is that the proposed tax policy incentivises the US companies to manufacture domestically as foreign goods are no longer tax-deductible for tax computation. The proposed development is obvious negative to export counters that have major exposure to the US. The revenue contributed by the US is approx. RM 63.1m which represents 25% of JayCorp’s income which is quite material.

Domestically, the consumer confidence has weakened significantly which is attributable to 1) weakening Ringgit which has increased the cost of living, 2) GST which has reduced the purchasing power and 3) weak consumer sentiment resulting from uncertainty in the job market. The recent announcement of hike in fuel price in January 2017 will, inevitably, reduce the purchasing power. Although Malaysian government has taken few measures to stimulate the economy (3% reduction in EPF contribution, increase the minimum wage and BR1M payout), we do not expect any material improvement in domestic consumer landscape.

P/E is trading below the mean, and we believe the near-term uncertainty will continue to weaken the market sentiment especially the furniture products are not considered essential by nature.


P/B suggests the company is overvalued and we have seen the stock declined 18% from the peak of circa RM 1.62 and failed to sustain at this level. The stock has hit our target price of RM 1.50.

 

Overall, we maintain our NEUTRAL rating on the stock with an unchanged target price of RM 1.50 (implied upside potential of 12.8%). Our cautious optimistic view is premised on the fact that there will not be any near-term material adverse change in trading outlook.

 

For discussion of JayCorp’s Q1 FY17 result, click here.
For equity research report, click here.

 

Disclaimer: The views above are opinions based on facts and subjective judgements. Every care has been taken to ensure the accuracy of the information; we do not hold ourselves responsible for the completeness and accuracy. Yield Mountain (including the contributors) does not take any responsibility (be it monetary or non-monetary) for any actions rely on the information discussed.

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