Stock Name: NOTION
Company Name: NOTION VTEC BHD
Research House: OSK
Notion Vtec Bhd
(May 11, RM2.14)
Maintain neutral at RM2.07 with target price of RM2.12: Notion reported 1HFY11 revenue of RM113.9 million, up 0.8% year-on-year (y-o-y), with its camera division contributing over 47% of the total. Core earnings shed 26% y-o-y to RM19.5 million as margins took a hit from the continued appreciation of the ringgit against the US dollar (which averaged 3.08 against 3.39 in 1HFY10). On a sequential basis, turnover plunged by more than 10% to RM53.9 million on slower orders for its cam barrel segment, in line with what we had guided previously. Contribution from the division sunk 18.4% quarter-on-quarter while its HDD and auto segment held up relatively well against unfavourable forex staying flattish q-o-q at RM20.5 million and RM9 million respectively.
Western Digital posted lower 1QCY11 earnings on weak PC sales as the interest in tablet devices increased. It expects a flattish 2QCY11 after seeing HDD shipments fall 4% sequentially in 1QCY11 to 50 millon units. Japan's earthquake and tsunami in March could also have taken a toll on the HDD component supply chain with the effect likely to unveil by 3QCY11, should there be any delays in restoration to full production. We understand from sources that HDD prices have inched higher by 5% to 15% since April on fear of supply shortages, but the extra buffer is unlikely to flow to component manufacturers like Notion in our view.
We are maintaining our FY11 earnings per share (EPS) estimate of 26.5 sen for now pending more affirmative indications on Nikon's ongoing restoration work. Its affected plant and manufacturing subsidiaries have resumed operations since end-March, but the planned brownouts are a hurdle for the commencement of full production. A downgrade to our forecasts is likely should the electricity woes prolong. We also take the opportunity to introduce our FY12 EPS forecast of 31.0 sen.
Although potential setbacks in the HDD industry could dampen sentiment, we believe the new income stream from closer tie-ups with Nikon would help to mitigate the downside risk to earnings. Recall that Notion secured new production orders from Nikon for camera body mounts in late-March and its lens sub-assembly operation has also commenced last month. Hence, we reiterate our 'neutral' call at unchanged fair value of RM2.12 based on eight times FY11 price earnings ratio. ' OSK Research, May 11
This article appeared in The Edge Financial Daily, May 12, 2011.
Company Name: NOTION VTEC BHD
Research House: OSK
Notion Vtec Bhd
(May 11, RM2.14)
Maintain neutral at RM2.07 with target price of RM2.12: Notion reported 1HFY11 revenue of RM113.9 million, up 0.8% year-on-year (y-o-y), with its camera division contributing over 47% of the total. Core earnings shed 26% y-o-y to RM19.5 million as margins took a hit from the continued appreciation of the ringgit against the US dollar (which averaged 3.08 against 3.39 in 1HFY10). On a sequential basis, turnover plunged by more than 10% to RM53.9 million on slower orders for its cam barrel segment, in line with what we had guided previously. Contribution from the division sunk 18.4% quarter-on-quarter while its HDD and auto segment held up relatively well against unfavourable forex staying flattish q-o-q at RM20.5 million and RM9 million respectively.
Western Digital posted lower 1QCY11 earnings on weak PC sales as the interest in tablet devices increased. It expects a flattish 2QCY11 after seeing HDD shipments fall 4% sequentially in 1QCY11 to 50 millon units. Japan's earthquake and tsunami in March could also have taken a toll on the HDD component supply chain with the effect likely to unveil by 3QCY11, should there be any delays in restoration to full production. We understand from sources that HDD prices have inched higher by 5% to 15% since April on fear of supply shortages, but the extra buffer is unlikely to flow to component manufacturers like Notion in our view.
We are maintaining our FY11 earnings per share (EPS) estimate of 26.5 sen for now pending more affirmative indications on Nikon's ongoing restoration work. Its affected plant and manufacturing subsidiaries have resumed operations since end-March, but the planned brownouts are a hurdle for the commencement of full production. A downgrade to our forecasts is likely should the electricity woes prolong. We also take the opportunity to introduce our FY12 EPS forecast of 31.0 sen.
Although potential setbacks in the HDD industry could dampen sentiment, we believe the new income stream from closer tie-ups with Nikon would help to mitigate the downside risk to earnings. Recall that Notion secured new production orders from Nikon for camera body mounts in late-March and its lens sub-assembly operation has also commenced last month. Hence, we reiterate our 'neutral' call at unchanged fair value of RM2.12 based on eight times FY11 price earnings ratio. ' OSK Research, May 11
This article appeared in The Edge Financial Daily, May 12, 2011.
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