Stock Name: NOTION
Company Name: NOTION VTEC BHD
Company Name: NOTION VTEC BHD
| Research House: OSK | Price Call: TRADING BUY | Target Price: 2.41 |
THE BUZZ
Malaysian Reserve reported that during yesterday's EGM,Notion has indicated its intentions toset up manufacturing operations in China to cater for the growing demand forits hard disk drive (HDD) components.
OUR TAKE
More on China venture. We understand that Notion willinitially rent a factory in Dongguan, China by end-2012 and it is looking tofork out some RM5m-RM10m to kick start its operations in China. This venture isexpected to contribute up to 3.5% (RM8mRM10m) of its total sales next year.Management may also consider purchasingthe manufacturing line upon gaining operating momentum, somewhat akin to itspurchase of a piece of land with an industrial factory in Klang that amountedto RM17.5m last month.
Wooing Seagate.We think the China foray aims to take advantage of the pent-up demand for components fromSeagate which has manufacturing plants in both Wuxi and Guangzhou, China. JCYis also embarking on similar move to expand its operations in both Suzhou andFoshan, China by increasing the manufacturing floor space and adding computernumerical control (CNC) machineries, with the aim of reducing long-term logistic costs within the HDD supplychain. We believe another motivation to venture into China could be the need todiversify one's geographical exposure to mitigate the risk of catastrophicevents, like the severe flooding inThailand, which could paralyze day-today business operations.
Maintain TRADING BUYat FV of RM2.41. No changes weremade to our financial forecasts as we deem the revenue contribution immaterialfor now. We reiterate our TRADING BUY recommendation on Notion with a fairvalue (FV) of RM2.41/share ascribed to 8x CY12 PER. We continue to like thestock following the inclusion of three new Japanese HDD customers into its client base, which would, in turn, boostits profitability moving forward.
Source: OSK188
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