THE BUZZ
Yesterday, Notion reported that its main manufacturing plant in Klang, Selangor, caught fire on New Year’s Eve, affecting 5% of its built-up area and damaging 100 of its 1.5k computer numerical control (CNC) machines. Substantial inventory was also burnt during the unfortunate incident. The cause of the catastrophe is unknown and investigations are currently underway.
OUR TAKE
Losses to be covered by insurance. The company’s significant asset losses are, fortunately, covered by insurance. Furthermore, the consequential business losses arising from the incident are also being taken care of. However, the full financial impact from the incident has yet to be determined.
Yesterday, Notion reported that its main manufacturing plant in Klang, Selangor, caught fire on New Year’s Eve, affecting 5% of its built-up area and damaging 100 of its 1.5k computer numerical control (CNC) machines. Substantial inventory was also burnt during the unfortunate incident. The cause of the catastrophe is unknown and investigations are currently underway.
OUR TAKE
Losses to be covered by insurance. The company’s significant asset losses are, fortunately, covered by insurance. Furthermore, the consequential business losses arising from the incident are also being taken care of. However, the full financial impact from the incident has yet to be determined.
10% potential revenue loss; plant to resume in four months. Management said there would be a temporary loss of about 90% capacity at Kaiten Precision (M) SB, its wholly-owned subsidiary, which contributes about 10% to group revenue. Meanwhile, another wholly-owned subsidiary, Notion Venture SB, may also experience some minor disruption in certain parts of its daily operations. The company will be taking urgent steps to restore the plant within four months.
Upgrade to TRADING BUY, FV RM0.88. This negative development prompts us to cut our FY13/FY14 revenue and core earnings forecasts by 7.5%/7.4% and 15.7%/10.4% respectively. In view of the fact that Notion’s share price sank 18% yesterday when the news broke out, we are upgrading the stock to TRADING BUY from NEUTRAL, based on its new FV of RM0.88. We derive this based on a combination of lowering our estimates and the existing 6.4x CY13 core earnings (representing a 20% discount to its seven-year average forward PE of 8x). We think the stock may rebound as it has been severely bashed down, no thanks to investor pessimism. That said, we would like to point out that HDD sales are likely to be weak in the near term while the sales of camera with interchangeable lens have deteriorated in the past few months. We have incorporated all these factors into our financial forecasts. Our new RM0.88 FV suggests that the stock is cheap strictly on a valuation basis, and warrants a TRADING BUY recommendation for now.
Upgrade to TRADING BUY, FV RM0.88. This negative development prompts us to cut our FY13/FY14 revenue and core earnings forecasts by 7.5%/7.4% and 15.7%/10.4% respectively. In view of the fact that Notion’s share price sank 18% yesterday when the news broke out, we are upgrading the stock to TRADING BUY from NEUTRAL, based on its new FV of RM0.88. We derive this based on a combination of lowering our estimates and the existing 6.4x CY13 core earnings (representing a 20% discount to its seven-year average forward PE of 8x). We think the stock may rebound as it has been severely bashed down, no thanks to investor pessimism. That said, we would like to point out that HDD sales are likely to be weak in the near term while the sales of camera with interchangeable lens have deteriorated in the past few months. We have incorporated all these factors into our financial forecasts. Our new RM0.88 FV suggests that the stock is cheap strictly on a valuation basis, and warrants a TRADING BUY recommendation for now.
Source: OSK
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