PP 7767/09/2010(025354)

3 August 2010

Malaysia Corporate Highlights

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

R e su l ts Pr e v i e w
3 August 2010
MARKET DATELINE

Notion Vtec Share Price

Fair Value
:
:
RM2.35
RM2.07
Not As Good As Hoped Recom : Underperform
(Downgraded)

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

EPS Net
FYE Revenue Profit EPS FD EPS Growth PER C.EPS* P/CF ROE Gearing GDY
Sep (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (%) (x) (%)
2009 172.7 36.0 25.6 25.6 6.6 9.2 - 2.6 24.0 0.2 1.7
2010f 226.5 41.5 26.8 24.1 4.8 8.8 35.0 2.3 22.1 0.1 2.2
2011f 276.5 44.8 29.0 25.8 7.9 8.1 45.0 1.9 21.1 0.1 2.2
2012f 343.8 50.2 32.5 28.7 12.1 7.2 59.0 1.6 20.1 Cash 2.2
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Warning for 3Q results. The market yesterday beat us to the punch, Issued Capital (m shares) 154.6
de-rating Notion’s share price by 10.3%. We believe 3QFY9/10 results (to Market Cap (RMm) 363.2
be announced on 5 Aug) are likely to be worse than expected due to Daily Trading Vol (m shs) 4.1
52wk Price Range (RM) 1.33-3.49
higher costs incurred from the RM80m expansion of the 2.5” Hard-Disk
Major Shareholders: (%)
Drive (HDD) baseplate capacity and lower revenue after adjusting for the
Choo Wing Hong 13.1
weaker US$ vs. RM. Conditions are not expected to improve in 4QFY9/10. Choo Wing Onn 9.7

♦ Outlook dimmed due to competition and weak demand. The outlook

Nikon 9.0

for 4QFY9/10 and beyond now appears more negative compared to the FYE Sep FY10 FY11 FY12
more bullish view after our visit to the company in May. We note that EPS chg (%) -21.1 -36.2 -47.4
major HDD manufacturers including Western Digital and Seagate recently Var to Cons (%) -31.2 -42.6 -51.4
guided that lower-than-expected HDD demand caused by EU debt
problems and slow US recovery has been compounded by capacity PE Band Chart

oversupply in the industry. Aggressive competition has thus resulted in

falling prices and diminishing margins. The upside from Samsung’s PER = 11x
PER = 8x
aggressive expansion plans in the 2.5” HDD segment also appears to PER = 5x
have evaporated.

♦ Forecasts cut. We have cut our FY9/10-12 EPS forecasts by 21.1%,

36.2% and 47.4% respectively, after factoring in 25-35% lower sales and
lower margins. We had originally expected baseplate capacity to rise from
350-400/month currently to 1m/month by end-FY10, 5m/month in FY11 Relative Performance To FBM KLCI
and 7m/month in FY12, but the likelihood now is that the company will
stop at 2m/month in FY11 while further capacity expansions will be on
hold for now. We note that 80% of the capex has already been spent. For
FY10, revenue has also been affected by the -7.7% YTD decline in the US
Notion Vtec
against the ringgit. However, we note that we are still looking at the
RM/US$ exchange rate coming back to around RM3.20-3.30 by year end.
FBM KLCI
♦ Risks to our view. 1) Recovery in demand if US economic growth
strengthens earlier than expected; and 2) Fluctuations in RM/US$
exchange rate.

♦ Downgrade. Although the camera segment remains resilient and will

provide some support to revenue growth, the focus will likely remain on
the negative outlook for PC sales growth and the oversupply of HDDs. Our
fair value has been cut to RM2.07 based on our new forecasts and a more
conservative target FY9/11 PER of 8x (vs. 10x previously). Although Yap Huey Chiang
yesterday’s share price fall suggests that the market has already factored (603) 92802166
yap.huey.chiang@rhb.com.my
in this negative view, we believe there is still downside risk given the
uncertain earnings outlook. We thus downgrade our call on the stock to
Underperform from outperform.

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 3 August 2010

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Sep (RMm) FY09 FY10F FY11F FY12F FYE Sep FY10F FY11F FY12F
HDD 69.1 103.6 129.5 161.9 Revenue growth (%) 35.3 41.2 38.9
Camera 74.3 90.6 111.4 139.3 HDD 50.0 25.0 25.0
Auto/industrial 29.4 32.3 35.5 42.6 Camera 22.0 23.0 25.0
Turnover 172.7 226.5 276.5 343.8 Auto 10.0 10.0 20.0

EBITDA 63.9 70.6 87.4 102.9 Total Shipments units (m) FY10 FY11 FY12
EBITDA margin (%) 37.0 31.2 31.6 29.9 HDD 48.2 54.4 64.8
Camera 8.8 10.6 12.9
Depreciation (18.2) (19.6) (29.2) (37.7) Auto/others 2.1 2.3 2.9

EBIT 45.7 51.0 58.2 65.2 RM:US$ exchange rate 3.30 3.25 3.20
EBIT margin (%) 26.5 22.5 21.1 19.0
Source: RHBRI estimates
Interest expense (3.7) (4.1) (4.9) (5.4)
Associates 1.0 1.0 0.0 0.0
Pretax profit 43.0 48.0 53.3 59.8
Taxation (7.0) (7.7) (8.5) (9.6)
Minority interest 0.1 0.2 0.0 0.0
Net profit 36.0 41.5 44.8 50.2
Source: Company data, RHBRI estimates

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 FBM 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 FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

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

Industry/Sector Ratings

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

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

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

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