Notion Vtec - Below Expectations

THE BUZZ

Notion reported 3QFY12 revenue and core earnings of RM95.8m (+13.4% q-o-q, +57% y-o-y) and RM16.1m (+8.8% q-o-q, +95.5% y-o-y) respectively. On a cumulative basis, 9MFY12 revenue/core earnings grew by 25.8%/14.3% y-o-y to RM220m/RM31.7m. Despite the stronger earnings, the results missed our and consensus estimates by 13%-23%. We are putting our forecasts, FV and recommendation under review, pending the analyst briefing later today.

OUR TAKE

Below expectations. After stripping off the one-time net write-back of RM3.3m in 3QFY12, 9MFY12 core earnings came in 13%-23% below our and consensus expectations. Essentially, this could be attributed to the sub-par performance in its HDD segment (-1.6% q-o-q, +68.7% y-o-y). We gathered that since June, Nidec and NHK Spring had returned to their usual pre-Thai floods suppliers and pulled back their sales orders. However, contribution from the camera segment has been strong (+29.3% q-o-q, +61.6% y-o-y), lifted by the pent-up demand for cameras with interchangeable lens (CIL) from Nikon. Based on the reported figures, the 3QFY12 product mix for HDD:Camera:Auto segments could be broken down to 38%:49%:13% respectively compared to 44%:43%:13% in 2QFY12 and 36%:48%:16% in 3QFY11.

Flat shipment guidance from HDD players. Management highlighted that for the month of July, revenue came in at RM33m despite the tough operating conditions in the HDD segment. However, this might not be the case for August and September, seeing that Western Digital and Seagate had guided the market for flat HDD shipment numbers in 3QCY12.

Interim dividend of 1 sen. Traditionally, Notion split its dividend payment into two tranches and it usually distributes 20%-25% of net profit (no dividend policy in place). Having declared DPS of 1 sen against core EPS of 11.7 sen, this translates to a DPR of only 8.5%. We will remain vigilant on the situation.

Under review. We will have a clearer visibility of Notion’s business outlook after an analyst briefing which will be held later today. Meanwhile, we are putting our forecasts, FV and recommendation under review.

Source: OSK