We revise upwards our FY12/FY13 core earnings forecasts by
16.8%/34.9% as we see an earnings lift from its HDD and camera
segments, buoyed by pent-up demand from
Minebea and Nikon. This leads to a higher FV of RM1.50, based on 6.4x CY13 PER.
We Maintain our TRADING BUY recommendation as we continue to like the company
for its diversified product base.
Bullish guidance. On the back of a good set of financial
results spurred by the rapid recovery of upstream players from the
Thai floods, Notion remains positive on
the outlook for its HDD and camera business. Overall, management is guiding for
a top-line growth of 41% for FY12 and by another 33% in FY13.
2.5” HDD baseplates
to boost
top-line. Although we gather that the company faced some production
capacity constraints in 2QFY12 as
the limited supply of manpower capped
the growth of its HDD segment,
management resolved the issue by hiring 1k more workers at a cost of
RM18m/year. As a result, Notion was able to ramp up its 2.5” HDD baseplate
production from less than 2m pieces/mth
to 4m pieces/mth to cater to demand from
Minebea. Assuming the cost
of a typical HDD baseplate of USD1.30/piece, Notion is poised to
generate an additional USD31.2m/year (~RM93m/year). This suggests that the
segment will see high profits going forward.
Growing appetite for
CIL products. In the camera segment, Nikon expects the market for cameras
with interchangeable lens (CIL) to experience rapid growth, buoyed by the accelerated expansion of the
non-reflex camera market. The company is guiding for CIL shipments to climb 48%
while that in the IL segment is expected to expand by 40% in FY13 (Nikon’s
financial year-end is in March). These developments bode well for Notion as
orders for its cam barrels pick up.
Minimal contribution
from China. Meanwhile, on the company’s proposed facility in Dongguan
in China, management says it is
cautious with investment spending as the competition in that country is
intense, and as such, prudence is warranted. Hence, we expect the financial
contribution from Notion’s China operations to be minimal.
Keep TRADING BUY,
revised FV RM1.50. We are revising upwards our FY12/FY13 core
earnings forecasts by 16.8%/34.9% on the back of: (i) increasing volume production
for its 2.5” HDD baseplates, and (ii) pent-up demand for CIL products. However,
we are trimming our PER multiple from 8x to 6.4x (a 20% discount to its 7-year average forward
PER of 8x) in view of the weaker market sentiment as well as roll over our
valuation to CY13. As a result, we
derive a higher FV of RM1.50. Maintain TRADING BUY.
Source: OSK
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