KLCI : 1,792.21
Price Target : 12-Month RM 0.90 (Under Review)
Recovery to continue in 2HCY13
9MFY13F earnings below our estimates but in line with market
Core net profit rose >100% q-o-q; received RM36m in insurance claims for YTD exceptional gains of RM8m
Expect 2HCY13 to improve on the back of growing enterprise HDD demand and DSLR product launches
Maintain BUY, TP under review
Recovery in key camera segment. 3QFY13 net profit of RM40m was 102% higher y-o-y (>100% q-o-q) predominantly due to insurance receipts of RM35.8m on loss of assets due to the fire incident at Notion’s Klang factory on 31 Dec 2012. Stripping this out, core net income was RM7m, 65% lower y-o-y from lower orders from key clients Western Digital and Nikon. On a positive note, on a q-o-q basis earnings are up by >100%, as there has been a recovery in demand for interchangeable camera lenses (camera segment revenue improved 47%), but given that Nikon SLR and interchangeable lense shipments fell on a y-o-y basis, we are monitoring this development closely. Gross margin was also higher at 21.9% vs. 16.0% in 2QFY13. However, slow PC sales and a seasonally soft quarter in Europe dampened HDD demand (Notion’s HDD segment revenue increased by 5%). 9MFY13 core earnings were below our estimates but in line with consensus’.
Near-term outlook is healthy. 2HCY13 should see pick-up in key segments on the back of seasonally higher demand and new product launches. We think Notion is poised to recover as HDD demand ramps up, specifically in the capacity enterprise space (Western Digital should progressively roll out its helium sealed cloud storage drives HDDs in 2014). This is premised on rampant demand for data storage solutions in the cloud as well as for application processes. In addition, interchangeable camera lens demand is expected to improve in the near-term as Nikon ramps up newer products in its entry-level SLRs. New ventures into consumer electronics, oil & gas and robotics components would likely play a part in Notion’s medium-to-long term growth outlook.
Maintain BUY. We cut FY13F core earnings by 23% to incorporate lower HDD & industrial/auto contributions, as well as lower gross margins but maintain our price target, which is pegged to 5x CY14F EPS.
Publish date: 16/08/13