Notion Vtec - Results slightly below expectations

Period    3Q12

Actual vs.  Expectations

 The 9M12 revenue of RM220.0m accounted for 76.4% and 67.7% of the street and our full year estimates of RM287.8m and RM325.0m respectively. Meanwhile, the 9M12 PAT of RM29.7m made up 61% and 62.5% of the consensus and our full year FY12 forecasts of RM48.6m and RM47.5m respectively. Hence, the results came in slightly below expectations as 3Q12 is normally the strongest quarter of the financial year.

Dividends   An interim tax-exempt dividend of 1.0 sen was announced during the quarter.

Key Result Highlights

 YoY, 9M12 turnover increased by 25.8% to RM220.0m mainly due to the higher shipment of camera parts. However, the bottom line recorded a lower PAT of RM30.5m vs. a PAT of RM34.4m a year ago due to lower margin from sales made in 1Q12 and 2Q12.

 QoQ, the revenue and PAT increased by 13.4% and 27.7% respectively. Note that there was a net writeback of RM3.3m due to the over-provision of losses for Thailand flood earlier.

 Margin-wise, the PAT margin was 20.7% in 3Q12 and 18.4% in 2Q12. This was in line with the management guidance that its 3Q12’s PAT margin would be around 18%-22%.     

 The 3Q12’s product mix was mainly contributed by Camera parts (49%) while the rest of the revenue contributions came from HDD parts (38%) and Industrial/Automation (13%). This is as compared to the previous quarter’s mix of 43% (Camera parts), 44% (HDD parts) and 13% (Industrial/Automation).   

Outlook   Management is cautious about revenue going forward as the group has lost order from Nidec and NHK Spring (HDD customers) since Jun. These customers have reverted back to their usual suppliers after the recovery of their operations in Thailand.

 The group is also wary that the European crisis and global weak sentiment may affect the group’s HDD segment as its major customers (Western Digital and Seagate) viewed that their revenue from HDD may be subdued in the 3^rd  quarter. 

Change to Forecasts

 We are maintaining our FY12-FY13E earnings forecasts (but with a downward bias) at this juncture pending today’s result briefing by management. 

Rating  OUTPERFORM (pending review) 

 Our OUTPERFORM rating is pending more details from today’s result briefing as the HDD industry may be affected by the slow recovery globally especially in the Eurozone.

Valuation    We are maintaining our current TP at this juncture. We may lower our current TP due to lower orders from its customers pending today’s result briefing. Our current TP is RM1.85 based on FY13 forward PER of 7.5x.

Risks   Foreign currency exchange rate.

 Industry recovery may falter halfway.

 Lower orders from HDD customers.   

Source: Kenanga