KUALA LUMPUR: Notion VTec Bhd is confident of making up for its earnings losses due the the floods in Thailand in the remaining quarters of FY12.
The company is optimistic because its two major customers, hard disk drive (HDD) manufacturers Seagate and Western Digital, are recovering well from the floods. Notion VTec supplies HDD components to both multinationals.
“We should be able to recover [our losses] over the next three quarters,” executive chairman Thoo Chow Fah told an analyst briefing yesterday.
In its announcement of its 4QFY11 ended September results two days ago, the company said revenue is expected to fall 45% in the current 1QFY12 ending Dec 31 from 4Q due to loss of sales and provision for losses arising from its plant in Thailand that was hit by the floods.
In tandem with the lower revenue, Notion is also likely to record a loss in 1QFY12.
The company said it will set aside RM3 million for the provisioning of submerged finished goods and RM2 million for the provision of replacement machinery.
Chow said the company is expecting a slower quarter after data showed its sales had slowed down to 11 million orders in October from the usual 20 million anticipated for the month.
He emphasised that the company’s earnings were less harmed by the impact of the floods on its own factories than by the effect on its major customers.
“Two of our major customers saw 70% of their plants affected, at this point in time we can [make] only 40% of the normal sales,” he said.
Despite the headwinds its major customers are facing, Notion’s factory in Klang is running at full capacity as it has new customers to cater for. The company found three new customers in 4Q.
“In the current environment, there is a shortage pf surface treatments and component supplies and because of this [HDD component makers] can command a premium of between 20% and 40%,” said Chow.
He added that the company may spend up to RM10 million this February to acquire used computer numerical control (CNC) machines to serve both its new and old customers when the latter recover, and projects a stronger demand for Notion next year.
However, he said it is “a balancing act” to serve existing customers and seek new ones.
“There is no shortage of business. We could gain new customers in the short term and command premium prices, but when our old customers recover we will need to have the capacity to meet their demand too,” he said.
He added that Notion may relocate its manufacturing operations if its major customers do so.
For FY12, Notion expects revenue to be flat year-on-year, but “this setback is only temporary, we have the financial resources to weather the storm and quickly get back on our feet”.
The company saw its net profit rise 23.3% to RM46.86 million in FY11 from RM38 million the year before, while revenue rose 5% to RM236.8 million from RM225.4 million. It had RM24.2 million in cash or cash equivalents as at end-September.
Revenue from its HDD segment fell 11.6% to RM83.9 million in FY11 from RM95 million the year before, while its camera segment saw revenue increase 24% to RM114.4 million from RM92.2 million.
Earnings from its auto and industrial segment remained at RM38 million.
Hong Leong Investment Bank expects Notion’s revenue to dip 2.3% to RM231.18 million in FY12 and its reported profit to fall 24% to RM35.69 million.
Hong Leong has a “hold” call on Notion and a target price of RM1.63 for the stock.
Shares of the company closed three sen higher at RM1.57 yesterday. It reached a two-year low of RM1.42 on Sept 29.
This article appeared in The Edge Financial Daily, November 25, 2011.
The company is optimistic because its two major customers, hard disk drive (HDD) manufacturers Seagate and Western Digital, are recovering well from the floods. Notion VTec supplies HDD components to both multinationals.
“We should be able to recover [our losses] over the next three quarters,” executive chairman Thoo Chow Fah told an analyst briefing yesterday.
In its announcement of its 4QFY11 ended September results two days ago, the company said revenue is expected to fall 45% in the current 1QFY12 ending Dec 31 from 4Q due to loss of sales and provision for losses arising from its plant in Thailand that was hit by the floods.
In tandem with the lower revenue, Notion is also likely to record a loss in 1QFY12.
The company said it will set aside RM3 million for the provisioning of submerged finished goods and RM2 million for the provision of replacement machinery.
Thoo: We have the financial resources to weather the storm and quickly get back on our feet.
Chow said the company is expecting a slower quarter after data showed its sales had slowed down to 11 million orders in October from the usual 20 million anticipated for the month.
He emphasised that the company’s earnings were less harmed by the impact of the floods on its own factories than by the effect on its major customers.
“Two of our major customers saw 70% of their plants affected, at this point in time we can [make] only 40% of the normal sales,” he said.
Despite the headwinds its major customers are facing, Notion’s factory in Klang is running at full capacity as it has new customers to cater for. The company found three new customers in 4Q.
“In the current environment, there is a shortage pf surface treatments and component supplies and because of this [HDD component makers] can command a premium of between 20% and 40%,” said Chow.
He added that the company may spend up to RM10 million this February to acquire used computer numerical control (CNC) machines to serve both its new and old customers when the latter recover, and projects a stronger demand for Notion next year.
However, he said it is “a balancing act” to serve existing customers and seek new ones.
“There is no shortage of business. We could gain new customers in the short term and command premium prices, but when our old customers recover we will need to have the capacity to meet their demand too,” he said.
He added that Notion may relocate its manufacturing operations if its major customers do so.
For FY12, Notion expects revenue to be flat year-on-year, but “this setback is only temporary, we have the financial resources to weather the storm and quickly get back on our feet”.
The company saw its net profit rise 23.3% to RM46.86 million in FY11 from RM38 million the year before, while revenue rose 5% to RM236.8 million from RM225.4 million. It had RM24.2 million in cash or cash equivalents as at end-September.
Revenue from its HDD segment fell 11.6% to RM83.9 million in FY11 from RM95 million the year before, while its camera segment saw revenue increase 24% to RM114.4 million from RM92.2 million.
Earnings from its auto and industrial segment remained at RM38 million.
Hong Leong Investment Bank expects Notion’s revenue to dip 2.3% to RM231.18 million in FY12 and its reported profit to fall 24% to RM35.69 million.
Hong Leong has a “hold” call on Notion and a target price of RM1.63 for the stock.
Shares of the company closed three sen higher at RM1.57 yesterday. It reached a two-year low of RM1.42 on Sept 29.
This article appeared in The Edge Financial Daily, November 25, 2011.
