Regarding JCY International

JCY was listed on 25 Feb 2010. It's performance since listing (ipo price was 1.60) have been rather dire.

Now UBS AG and CIMB were the joint managing underwriters and bookrunners for the IPO.

And since this is a very 'new' stock, I would refer to CIMB Research IPO notes on JCY.

But there wasn't an IPO research notes on JCY from CIMB Research!

They only began coverage on the stock on 19th April 2010. JCY then was 1.74 and CIMB gave it a very optimistic target price of 2.68.

And mind you... the report.... was 52 pages long!

LOL!

Page 26 of the report..


Hmm.. some might not like that arrowed statement.

• JCY generated RM19m of negative free cash flow in 1QFY10 due largely to the repayment of RM80m owed to its shareholder.

Yes, JCY is in net debt and the very cynical would be fast hand, fast leg and point out that one of the very first thing JCY did as a listed entity was to pay off the debts owed to one of the shareholder. Yo.. it's 80 million bucks hor!

CIMB's valuation of JCY... and the key is 12x fy11 PE.

12x CY11 PE

To give a simple illustration on how to play the funky music.

Say a company's current eps is indicating an annual eps of 13 sen.

Ok, the cynics would say, to make the stock sexy and seductive, the eps is projected to GROW to 22.3 sen by a whopping 71.5%! ( LOL! say only lah... assume. :P )

1. Using 12x PE on 13 sen, the stock would be valued at 12x0.13 = 1.56.
2. Using 12x PE on 22.3 sen, the stock would value at 12x0.223 = 2.68.

See how the stock is all dressed to look super seductive?

Come on honey... you want me or not?

:P

Yes, I do not doubt future earnings is very important because a company is only worth what it could earn in the future but sometimes they are those insinuating reports that really suggest that a cow could be orbited to the moon so that it could do its nightly moon walking! ( LOL! A moon walker cow! :P ).

Seriously, there are many a times when one is bewildered by the earnings estimates made on a company.

So where is CIMB's key financial tables for JCY?

I found my answer at Page 47.

Ahem...

Here's my flawed interpretations.

JCY earned some 207 million for its fy 2009. CIMB says times are good in 2010, so JCY should earn some 359 million! And 2011, JCY earnings will be even more super. JCY should earn some 441 million by then!

How? Am I reading it wrongly?

So the whole key to CIMB's valuation of JCY is based on an optimistic earnings of 441 million or an eps of around 22.3 sen.

So how has JCY fared so far?

Ok.. I am aware that there are only 3 quarters of earnings posted by JCY and it's seriously too few to pass judgement but for the sake of comparing what JCY earned versus CIMB's estimates...

Ahm... total 3 quarters so far is only 198.944 million.

And to make matters worse, the earnings are declining each quarter.

Would JCY even post a net earnings of 250 million for its fy 2010? I dunno.

And what's CIMB's estimates again? 359 million for 2010 and 441 million for 2011!

oO

Ah... but I have to give CIMB a little credit. :P

Why? Because they have continuously re-adjusted their estimates. ( Cynics would say ... what for? Damages already done!)

7 May 2010.

21 May 2010 - Target price lowered!

CIMB research said:

• ... we cut our FY10-12 EPS by 13-17% for lower sales and margins after factoring in our new forex forecast of RM3.15:US$1 for FY11 vs. RM3.40 previously.

( Ah... strong RM ( or issit lembik USD) hurting JCY. )

fy 2010 earnings is now lowered to 297.3 million and fy 2011 earnings is now lowered to 370.8 million.

17 Aug 2010 - CIMB acknowledges the possible weakness but it refrains from jumping the gun and held onto their earning estimates and since JCY has fallen to 1.20, CIMB used the classical 'it had already priced in the possible weakness' as their reasoning.

And on this Monday, 23 Aug 2010, CIMB writes again on JCY.

JCY has fallen to just 1.17. (Will it be a penny stock soon? :P )

Earnings estimates are cut once more and the target price is lowered!

But the valuation method remains the same - it's based on 12x CY11 P/E.

• Accordingly, our target price, which is based on 12x CY11 P/E, falls from RM2.28 to RM1.88.

The financial table on JCY from CIMB

JCY is now projected by CIMB to earn some 263 million for its fy 2010.

And ....... for fy 2011, JCY is now projected to earn only 304.7 million or an eps of 14.9 sen.

Hmm... 12x CY11 PE... my calculator for 12 x 0.149 = 1.788.... I wonder how CIMB got 1.88. :P

And there you go.... the story of how JCY's earnings projection went from 441 million to just 304.7 million.

(ps: some are fussy and they would demand that I be more precise. :P

Ok.. the 441 million was projected on 19th April 2010. On 23 August 2010, that projection has been revised down to just 304.7 million. Precise enough? :P )