PP 7767/09/2010(025354)

26 April 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Resu lts Pr eview

26 April 2010
MARKET DATELINE

Notion Vtec Share Price

Fair Value
:
:
RM3.29
RM4.59
Stronger Demand Ahead Recom : (Outperform)

Table 1 : Investment Statistics (NOTION; Code: 0083) Bloomberg: NVB MK

Net EPS Net
FYE Revenue Profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing GDY
Sep (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)
2009 172.6 36.0 25.6 8.5 12.0 - 2.6 8.1 24.0 0.2 1.6
2010f 227.7 56.0 36.2 41.5 9.0 34.0 2.4 6.5 30.0 (0.1) 2.0
2011f 295.1 71.0 45.9 26.7 7.1 43.0 1.9 5.2 29.8 (0.0) 2.8
2012f 384.5 96.6 62.5 36.2 5.2 54.0 1.5 3.9 31.6 0.1 3.7
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 2QFY10 results preview. Notion Vtec (NVB) will release its 2QFY10 Issued Capital (m shares) 154.6
results on 29 April. We estimate net earnings to fall marginally 5-7% qoq Market Cap (RMm) 509
(vs. +9.2% qoq) to around RM13m due to: 1) seasonal factors; 2) Daily Trading Vol (m shs) 299.5
52wk Price Range (RM) 3.52–0.80
strengthening of RM against the USD (+4.3% qoq); and 3) higher expenses
Major Shareholders: (%)
stemming from the capacity ramp up in 2Q. This would bring 1HFY10 net
Choo Wing Hong 14.2
profit to around 54-55% of our FY10 previous net profit forecast and around
Choo Wing Onn 9.5
53-54% of consensus estimates. However, we expect a strong qoq growth
Nikon 9.0
in 3Q-4Q10, driven mainly by: 1) higher volume loading of base plates from
Samsung and strong contribution from higher margin spindle motor hub.
FYE Sep FY10 FY11 FY12
♦ Western Digital reported strong 3Q10. Western Digital‘s 3QFY10 EPS chg (%) - - -
revenue and net income jumped 66% and 700% yoy respectively given the Var to Cons (%) +6.5 +6.7 +15.8
pent-up demand for laptops as well as improving corporate IT spending.
PE Band Chart
With demand outlook remaining robust and capacity expected to remain
tight till end-2010, WD expects 2H 2010 unit shipments to register strong PER = 11x
PER = 8x
double-digit growth. PER = 5x

♦ Camera segment. Similarly, we expect resilient contribution from the

segment as consumers are trending towards higher-quality picture cameras
growing. Already, according to CIPA, shipments for interchangeable lenses
(for SLR) and SLR cameras in Jan-Feb grew 175% and 194% yoy
respectively.
Relative Performance To FBM KLCI
♦ Risks. Includes: 1) Rise in prices of raw material; and 2) Fluctuations in the
exchange rate.
Notion Vtec

♦ Forecasts. We have revised our FY10 net profit forecast by 8.6% while
keeping our FY11-12 net profit assumptions unchanged. However, we
believe there could be potential upside to our FY11-12 earnings driven
FBM KLCI
mainly by; 1) higher-than-expected sales of higher margin spindle motor
and camera barrels; and 2) stronger contribution from its Thailand
operations stemming from expansion of WD and HGST in Thailand.

♦ Investment case. We are maintaining our indicative fair value of RM4.59 Wong Chin Wai
(603) 92802158
based on a target PER of 10x FY 11 EPS. Hence, we reiterate an wong.chin.wai@rhb.com.my
Outperform call on the stock.
Yap Huey Chiang
(603) 92802171
yap.huey.chiang@rhb.com.my

Please read important disclosures at the end of this report.

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Table 2. Earnings Forecasts Table 3. Forecast Assumptions

FYE Sep (RMm) FY09 FY10F FY11F FY12F FYE Sep FY10F FY11F FY12F
HDD 76.0 108.7 143.7 179.6 Revenue growth (%) 29.2 33.2 30.4
Camera 78.9 101.0 133.1 186.4 HDD 40.0 35 25
Others 17.7 18.0 18.2 18.5 Camera 25.0 37 40
Turnover 172.6 227.7 295.1 384.5 Auto/others 1.5 2 2

Cost of sales (112.4) (140.6) (186.4) (241.2) Gross profit margin (%) 36.7 36.9 37.3
HDD 30.0 30.0 30.0
EBITDA 64.3 91.8 114.3 150.3 Camera 45.0 45.0 45.0
EBITDA margin (%) 37.2 40.3 38.7 39.1 Auto/others 31.0 31.0 30.0

Depreciation (18.2) (22.2) (26.9) (32.7) RM:US$ exchange rate 3.30 3.25 3.20

EBIT 46.1 69.6 87.3 117.6

EBIT margin (%) 26.7 30.6 29.6 30.6

Interest income 0.2 0.4 0.7 1.2

Interest expense (3.6) (2.4) (2.6) (2.9)
Others income/exp 0.0 0.0 0.0 0.0
Exceptionals 0.0 0.0 0.0 0.0

Pretax profit 43.0 66.6 84.4 114.9

Taxation (7.0) (10.7) (13.5) (18.4)
Minority interest 0.1 0.1 0.1 0.1

Net profit 36.0 56.0 71.0 96.6

Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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