Notion VTec Bhd
(Feb 21, RM2.10)
Maintain buy with target proce of RM2.10: For 1QFY12 Notion registered losses after flooding at its factories in Ayutthaya, Thailand disrupted operations.

Revenues were hit hard, with camera revenue tumbling the most by 45% year-on-year (y-o-y) to RM16.4 million, while hard disk drive (HDD) revenue fell 35% to RM13.6 million.

However, the weak results were within our and street expectations. Notion also booked RM5.5 million provisional loss after insurance claims for damaged inventories, plant and equipment.

These caused earnings before interest, tax, depreciation and amortisation (Ebitda) margins to shrink to 11.8% against 1QFY11’s 41.1%.

Separately, Notion announced a three-for-four bonus issue and one-for-four free warrant issue, which would take fully diluted paid-up share capital to RM185.2 million comprising 370.4 million shares, assuming full exercise of its 30.7 million outstanding warrants, implying 11.7 sen FY12F diluted earnings per share (EPS).

Notion’s Thai plant is expected to resume normal operations by June. Hence, earnings should improve in FY12, underpinned by: (i) higher average selling price (ASP) for HDD components given the supply deficit; (ii) additional three Japanese HDD customers; and (iii) the camera segment resuming normal operations by next month.

We are retaining our forecasts pending a briefing.

The stock has run up following positive news flow, but Notion’s exposure to a rapidly recovering HDD sector has yet to be priced in. Our RM2.10 target price is pending review. — HwangDBS Vickers Research, Feb 21

This article appeared in The Edge Financial Daily, February 22, 2012.