We attended Notion’s analyst briefing last Friday and went
away feeling more cautious on the company’s prospect as there is a risk that
the group’s earnings may be affected by a potential slowdown in the global
economy. Management guided that its outlook for 4Q12 will be just moderate as
compared to 3Q12 with revenue maintained at around just the RM90m level. Given
the more muted guidance and the global slowdown risk, we have cut our revenue forecasts
by 5% and 10%, to RM308m and RM367m in FY12 and FY13, respectively (vs. RM325m
and RM406m, respectively, previously). In tandem with our lower expected
turnovers, we have lowered our NP forecasts to RM43m and RM60m in FY12 and FY13
(from RM45m and RM64m, respectively, previously). Accordingly, our TP has also
been adjusted lower to RM1.50 (from RM1.85 previously) based on unchanged
targeted FY13 PER of 7.5x (3-year PER Band average). Dividend-wise, Notion has
set a minimum 20% dividend payout ratio policy. Based on our new earnings
estimates, the group is expected to distribute 2.9 sen and 4.0 sen dividend, which
translate to a dividend yield of 2.4% and 3.3% for FY12 and FY13, respectively.
Despite the downgrade, our lower TP still offers an attractive total return of
27.3% (capital gain of 24.0% and dividend yield of 3.3%) for the stock from the
current share price and hence, our OUTPERFORM rating is maintained.
Summary of 3Q12
results. On a QoQ basis, the group’s revenue and NP increased 13.4% and
27.7% to RM95.8m and RM19.8m respectively (from RM84.5m and RM15.5m previously)
due to higher shipments of camera orders and a net write back of RM3.3m from
overprovision of losses previously from the Thailand flood. YoY, the revenue
surged 57.3% from RM60.9m to RM95.8m while NP jumped 96.0% from RM10.1m to
RM19.8m due to higher ASPs and unit shipments of HDD after the Thailand flood. Margin-wise,
the group was still able to maintain its EBITDA margin at 35.5% in 3Q12
compared to 37.3% in 3Q11.
Outlook for 4Q12.
Management guided for a mild 4Q12 result where the top line is expected to be
flat at RM95.0m (3Q12: RM95.8m) while the bottom line is expected to record
around a lower RM10m-RM15m (3Q12: RM 19.8m). For the full year, Notion is
expected to grow 30% YoY in revenue with a slightly lower NP of RM43m (compared
to RM47m in FY11) due to lower earnings in the earlier first two quarters of
the current financial year (effects from the Thai flood). In addition, going
forward, the group is getting more concerned about the global economic
uncertainties due to the Eurozone crisis, the slowdown in the emerging markets
(China and India) and the volatility of USD.
Lower ASP but unit
shipment forecast remains unchanged. Although the management views that the
ASPs of HDDs would be sustainable, we reckon that they will face downward
pressure from a lower consumer spending as consumers start to be more cautious
on the slowdown in the global economies. We have lowered our ASP assumption by
7% to align with its key clients - Western Digital and Seagate, which recorded
lower ASP of 4%-7% during their latest quarter. Price aside, we, however, still
expect the unit shipments of HDD to increase by around 10% p.a., in line with
the industry expectation. In the same vein, we understand that management is still
expecting its Camera segment to grow by around 15% p.a. in the next 1-2 years.
Source: Kenanga
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