Stock Name: NOTION
Company Name: NOTION VTEC BHD
Research House: INTER PACIFIC
Notion Vtec Bhd
(April 20, RM3.34)
Maintain outperform at RM3.34 with target price of RM3.78: Notion Vtec, an integrated precision engineering specialist, supplies high precision components mainly to hard disk drive (HDD) and single-lens reflex (SLR) camera manufacturers.
Its main customers for HDD business are Western Digital and Nikon for the SLR camera business segment, each contributing about 30%-35% to its top line. It expects to register double-digit growth in 2010 and 2011 on the back of stronger demand for both their products.
The HDD outlook is expected to grow positively driven by: (1) increasing digital information flow which raises the need for digital storage; (2) rising consumer spending in electronic products and personal computers; and (3) a recovery in corporate IT spending.
According to Trendfocus, the estimated compound annual growth rate (CAGR) for global HDD is 8.5% between CY09 and CY12, and 17.9% for the 2.5" HDD for the same period.
Although the SLR camera business over the last two years outshined HDD business to become the major revenue contributor, Notion expects the HDD business to become its top revenue contributor for FY10 onwards mainly coming from the 2.5" base plate with stator and spindle motor production for Samsung.
The base plate with spindle motor hub production volume for Samsung is expected to increase from 250,000 pieces per month currently to two million pieces by 4QFY10 and subsequently to four million a month by FY12.
To meet the steep demand, Notion has rented a third factory in Klang and is expected to be commissioned by August. When fully operational, the factory will have the capacity of up to seven million pieces a month.
Besides Samsung, Notion is also in talks with Alphana. We expect HDD revenue to grow by 35% in FY10 and 57% in FY11 when the contribution from the base plate and spindle motor hub contribution kicks in.
According to Camera & Imaging Products Association (CIPA), CY10 shipments of digital SLR cameras with interchangeable lens should reach 11 million units or up 11.1% year-on-year (y-o-y). At the same time, the total shipment of interchangeable lens for SLR cameras will grow by 11.2% y-o-y or 17.9 million units in CY10.
Nikon, Notion's largest camera customer, acquired a 8.98% stake in Notion via private placement. The private placement raised about RM33.8 million and will be used to set up its Thailand plant in Ayuthaya and also for working capital.
Notion is unable to pass down any increase in raw material cost to its customer. Hence, for better cost control, it does most of the tooling in-house. To further increase cost efficiency, it plans to purchase the balance 60% of the nickel plating company, which they currently own 40%.
Underpinned by its aggressive expansion, we project Notion capex will be RM100 million in FY10 and RM75 million in FY11. Capex in FY10 will include (1) RM35 million Thailand factory; (2) RM10 million expansion in China; and (3) RM20 million for its third factory expansion.
We remain positive on Notion on the back of strong growth coming from both the HDD and SLR camera segments. Nevertheless, Notion is exposed to currency fluctuation as most of their HDD sales are carried out in the US dollar. The strengthening of the ringgit versus the US dollar will bite its bottom line slightly.
Our fair value of RM3.78 is based on FY11 earnings per share (EPS) of 36 sen and PER of 10.5 times. - Inter-Pacific Research, April 20
This article appeared in The Edge Financial Daily, April 21, 2010.
Company Name: NOTION VTEC BHD
Research House: INTER PACIFIC
Notion Vtec Bhd
(April 20, RM3.34)
Maintain outperform at RM3.34 with target price of RM3.78: Notion Vtec, an integrated precision engineering specialist, supplies high precision components mainly to hard disk drive (HDD) and single-lens reflex (SLR) camera manufacturers.
Its main customers for HDD business are Western Digital and Nikon for the SLR camera business segment, each contributing about 30%-35% to its top line. It expects to register double-digit growth in 2010 and 2011 on the back of stronger demand for both their products.
The HDD outlook is expected to grow positively driven by: (1) increasing digital information flow which raises the need for digital storage; (2) rising consumer spending in electronic products and personal computers; and (3) a recovery in corporate IT spending.
According to Trendfocus, the estimated compound annual growth rate (CAGR) for global HDD is 8.5% between CY09 and CY12, and 17.9% for the 2.5" HDD for the same period.
Although the SLR camera business over the last two years outshined HDD business to become the major revenue contributor, Notion expects the HDD business to become its top revenue contributor for FY10 onwards mainly coming from the 2.5" base plate with stator and spindle motor production for Samsung.
The base plate with spindle motor hub production volume for Samsung is expected to increase from 250,000 pieces per month currently to two million pieces by 4QFY10 and subsequently to four million a month by FY12.
To meet the steep demand, Notion has rented a third factory in Klang and is expected to be commissioned by August. When fully operational, the factory will have the capacity of up to seven million pieces a month.
Besides Samsung, Notion is also in talks with Alphana. We expect HDD revenue to grow by 35% in FY10 and 57% in FY11 when the contribution from the base plate and spindle motor hub contribution kicks in.
According to Camera & Imaging Products Association (CIPA), CY10 shipments of digital SLR cameras with interchangeable lens should reach 11 million units or up 11.1% year-on-year (y-o-y). At the same time, the total shipment of interchangeable lens for SLR cameras will grow by 11.2% y-o-y or 17.9 million units in CY10.
Nikon, Notion's largest camera customer, acquired a 8.98% stake in Notion via private placement. The private placement raised about RM33.8 million and will be used to set up its Thailand plant in Ayuthaya and also for working capital.
Notion is unable to pass down any increase in raw material cost to its customer. Hence, for better cost control, it does most of the tooling in-house. To further increase cost efficiency, it plans to purchase the balance 60% of the nickel plating company, which they currently own 40%.
Underpinned by its aggressive expansion, we project Notion capex will be RM100 million in FY10 and RM75 million in FY11. Capex in FY10 will include (1) RM35 million Thailand factory; (2) RM10 million expansion in China; and (3) RM20 million for its third factory expansion.
We remain positive on Notion on the back of strong growth coming from both the HDD and SLR camera segments. Nevertheless, Notion is exposed to currency fluctuation as most of their HDD sales are carried out in the US dollar. The strengthening of the ringgit versus the US dollar will bite its bottom line slightly.
Our fair value of RM3.78 is based on FY11 earnings per share (EPS) of 36 sen and PER of 10.5 times. - Inter-Pacific Research, April 20
This article appeared in The Edge Financial Daily, April 21, 2010.
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