TECHNOLOGY - Floods Take Toll on HDD Parts Makers (OSK)

HDD, camera makers have plants in flood-hit areas. The world’s largest HDD manufacturers Western Digital and Seagate both have a presence in Thailand. The former’s plants are located in the Pathum Thani and Ayutthaya provinces while the latter’s facilities are in the Samut Prakan and Nakhon Ratchasima provinces. Nikon too has an existing facility in Ayutthaya, in which production has stopped since 6 Oct, due to flooding. While the two HDD giants have yet to release definitive or official statements with regard to their respective operations in Thailand amidst the ongoing natural disaster, we understand that at least 3 out of the 4 provinces mentioned have been hit by flooding. Should the situation persist, their operations are likely disrupted as they evacuate employees, which would accordingly create a negative spillover impact on their component suppliers under our coverage such as JCY, Notion, and Eng Teknologi (Engtek).

UNDERWEIGHT. All in, we reiterate our UNDERWEIGHT stance for the Technology sector pending more concrete indication of the quantum of damage suffered by the companies in respect to the physical structure of their facilities as well as delivery orders foregone. In view of the weakness in end-consumer demand for HDDs amidst rising demand for solid-state drives following the proliferation of media tablets as well as the upcoming launch of ultrabooks, the latest production woes are likely to aggravate the situation. Hence our cautious stance stays. For now, our calls are JCY (SELL, RM0.31), Engtek (BUY, RM2.50) and Notion (BUY, RM1.71)