Looking for catalysts

Business & Markets 2013
Written by Maybank IB Research
Monday, 20 May 2013 09:05
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NOTION VTEC BHD []
(May 17, 73 sen)
Maintain hold at 71.5 sen with a target price (TP) of 76 sen: NVB’s
core net profit of RM5 million (down 73% year-on-year [y-o-y]) for the
first six months of 2013 financial year ending Sept 30 (6MFY13) was
below expectation, making up just 12% of our and an 15% the market’s
full-year estimates.
While we expect a strong revenue rebound in the second half (2H) of
FY13 (+30% to +40% half-on-half [h-o-h]), full-year earnings may still
come in below our forecast. Our earnings forecasts, “hold” rating and
TP of 76 sen (5.5 times 2013 price-earnings ratio [PER]) are under
review, pending a briefing for analysts.
Second quarter (2Q) earnings remained weak with core net profit of
RM2 million, down 85% y-o-y (+10% quarter-on-quarter [q-o-q]).
Revenue for 2Q rose just 4% q-o-q (hard disc drive [HDD] segment:
+17% q-o-q, camera component segment: -8%, industrial segment:
+6%) due to the slow economic recovery in its major markets.
Additionally, 2QFY13 earnings before interest, tax, depreciation and
amortisation (Ebitda) margin of 30% (+1.3 percentage points q-o-q,
-0.6 percentage points y-o-y) is still below what NVB used to achieve in
the past (FY11 and FY12: 36%), due to the implementation of the
minimum wage and lower machine utilisation rates.
We understand that NVB has seen a pick-up in orders since April this
year and management expects a 30% to 40% h-o-h rebound in revenue in 2H). We believe the stronger orders are for its
camera and industrial segments, where management is close to clinching new orders.
The HDD segment will remain lacklustre given the weak outlook for personal computer and laptop sales.
We have yet to provide for the cost of RM25 million which was incurred following a fire at its Klang plant in December 2012,
as we expect a writeback in 3QFY13 — NVB received an initial insurance claim of RM11 million in April 2013. NVB’s stock
price may find some support in the near term given that the company has resumed its share buybacks, buying a total of two
million shares at prices ranging from 72 sen to 75 sen. — Maybank IB Research, May 17