Notion Vtec - Boosted by production backlog

Period   2Q12

Actual vs.  Expectations

The 1H12 turnover of RM124.1m (+9% YoY) was broadly in line with expectations and accounted for 43% and 46% of ours and the consensus full year estimates respectively. 

However, 1H12 net profit of RM11m (-56% YoY) was below ours and the  street’s full year forecasts of RM52m and RM47m respectively. 

The number accounted for only 21% and 23% of ours and the consensus’ full year estimates. 

Dividends  No dividend was announced during the quarter and 1H12. For the full financial year, we expect the group to declare a total 3.5 sen dividend in 2H12, translating into a 3.0% net dividend yield. 

Key Result Highlights

YoY, 1H12 revenue improved by 9.0% to RM124m, due to higher sales volume and better ASP after the Thailand flood. Its NP was, however, lowered by -56% to RM11m, due mainly to the poor 1Q12 result that caused by lower revenue.  

QoQ, the revenue surged by 113% to RM85m as a result of strong orders led by a production backlog after the flood in Thailand in all the company’s three sales segments i.e. HDD (+173% to RM37m); camera parts (+123% to RM37m) and industrial/automotive (+13% to RM11m). In tandem with the strong revenue growth, 2Q12 net profit also returned to the black at RM16m as compared to the preceding quarter loss of RM5m. 

Better product mix revenue was recorded in 2Q12, where the HDD, Camera and Industrial/Automotive segments accounted for 44%, 43%, 13% of group’s sales as compared to the previous quarter’s mix of 34%, 41%, and 24%, respectively. 

Outlook  The hard disk drive industry has shown signs of recovery since Dec 2011 with the Inventory Shipment Index (ISI) improving from 452.6 to 157.0 in Mar 2012 (note that the index is read inversely) as the global demand for hard disk drive is expected to continue heading north throughout CY12. 

The group has also recorded RM33m of turnover in Apr (similar to Mar 2012) as a result of unfulfilled orders of components arising from the Thai flood coupled with new customers. Management expects the trend to continue into the rest of the year.   

Change to Forecasts

Maintaining FY12-13E forecasts pending the company’s result briefing today. 

Rating  OUTPERFORM (pending review)

Valuation   Our current TP is RM1.35 (pending review) is based on 7.5x FY12E forward PER.

Risks  Foreign exchange risk.  

Hard disk drive industry downturn.  

Source: Kenanga