|Notion VTec: New biz to compensate for reduction in orders|
|Friday, 18 March 2011 19:43|
KUALA LUMPUR: Notion Vtec Bhd expects the contribution from its new business -- both in the body mount and sub-assembly of lens -- to more than compensate for the expected reduction in orders for cam barrels due to the disruption and possible slowdown from the Japan earthquake.
It said on Friday, March 18 that its unit Notion Venture Sdn Bhd in Klang, as a contingency plan, would be supplied with raw materials from Nikon for the production of the body mount with immediate effect.
“Notion is preparing jigs and fixtures and utilising existing CNC (computer numerical control) machines to produce these precision components. Hard chrome surface treatment will be out sourced to a surface treatment company.
“The finished body mount components will be trucked to the customer’s plant in Thailand for assembly. We expect this new business to contribute between RM36 million to RM60 million in sales per year,” it said.
Notion said this is response to the article in The Edge Financial Daily dated March 18 “Japan Earthquake affects Notion VTec’s camera business”.
It said there would be no additional capital expenditure for this new production, adding that the relocation would be a long-term plan.
It said cam barrel recorded sales of RM98 million in FY2010, or 44% of its revenue of RM223 million, adding that Nikon was the major contributor besides Sony and Canon as well.
Notion said its internal revenue target for RM280 million included camera sales accounting for 50% or RM140 million in sales.
“This has not factored in the new sub assembly of lens business in Notion Thailand which starts from the month of April 2011 and will contribute significantly to Notion’s top and bottom line. The new body mount business is also not factored in,” it said.
Due to the extreme nature of the crisis in Japan, and the uncertainty of the total supply chain, it was likely that Notion’s cam barrel sales would be affected by the likely slow down in SLR camera/Interchangeable lens.
On March 17, analysts had expressed concern over supply disruptions for Notion’s camera components to Nikon, which has suspended operations at four plants in Japan.
ECM Libra said it was looking at a possible downgrade of its “buy” recommendation for the stock. The research house said the downgrade was pending further clarification from management and would depend on the quantum of potential downward earnings revision for its financial year ending Dec 31, 2011.
The local research house has a current target price for the stock pegged at RM2.50.
Meanwhile, OSK Research said it was maintaining its “neutral” call for now with an unchanged target price of RM1.85 pegged at 7 times FY11 PER. This is pending more affirmative signals from Nikon as the magnitude of damage to its core facilities and the restoration timeline are currently uncertain.
“The downside risks to earnings are likely to go up if Nikon’s suspension of operations and production halt are prolonged,” it said, adding that “prolonged disruptions in Nikon’s operation and production could put a dent on our earnings forecasts although we gather from management that there is no immediate stop order on its cam barrel production for now”.
Apart from being its single largest customer, Nikon is also a substantial shareholder of Notion.
Notion said Nikon’s SLR camera and Interchangeable Lens main production and assembly operations are based in Nikon Thailand plant in Ayuthaya but supply of components were from both in-house as well as external approved vendors.
Notion Thailand, Ayuthaya and Notion Venture are both supplying cam barrels and other camera parts to Nikon Thailand, it said.
It said Nikon’s in-house supply vendor, Sendai Nikon Corporation’s plant was affected by the earthquake, adding that it manufactured the high end SLR camera body as well as body and lens mount.
“The body and lens mount are metallic mating surfaces for the lens to be attached to the camera body and are high volume parts typically in the hundreds of thousand per month,” it said.