Notion ... Dec10

Notion VTec Bhd expects its camera division to be the growth driver going forward after it suffered from technical problems in its new hard disk drive (HDD) plant. The camera segment is expected to generate double-digit revenue growth for FY2011 ending Sept 30.

The camera segment will grow strongly in 2011, mainly from SLR camera parts.

Its revenue will be mixed for FY2011 and is expected to see the camera segment contributing 56% while the HDD division’s share would shrink to 32% amid expectation that the demand for the HDD and industrial/auto segment will be somewhat static. The HDD and camera segments currently contribute 44% each, and the industrial/auto segment 12%.

Notion is banking on the expansion of its camera parts manufacturing plant in Thailand, set to be fully completed by May 2010.

They are already making inroads with Sony, Panasonic and Canon although they are not big clients like Nikon.

Issues at the HDD baseplant are 'mostly sorted out now (Nov 2010)'. with the plant currently running in its first phase. The 200,000 sq ft plant is currently running in its first phase. It has capacity to produce up to 24 million pieces annually with Samsung as a major client.

Notion suffered a setback in 3Q10 due to technical difficulties at its new RM150 million 2.5in HDD baseplate plant. Notion’s net profit fell 73% in 3QFY2010 due to initial startup costs, and quality issues that saw the group incurring rectification and compensation costs.

However, the emergence of tablet devices such as the Apple iPad in 2010 has eroded demand for netbooks and laptops that use 2.5in HDDs. This impacted the demand from its clients. The plant is only running at 15% to 20% of capacity currently (Nov 2010).

Optimists believe that if the issues have been sorted out, the group could stand to gain when the market finally picks up. If the company has minimised its reject issues and rectified the operational issues, they can wait for the market to pick up. It’s cyclical and it will bounce back. Solid-state drives, which are touted as replacements for HDDs are still at a very nascent stage.

For FY2010 ended Sept 30, the group’s revenue rose 31% year-on-year (y-o-y) to RM226.8 million. Net profit rose 4% y-o-y to RM37.47 million while earnings per share was down to 24.88 sen from 25.51 sen a year ago.

For 4Q, revenue fell nearly 13% quarter-on-quarter (q-o-q) to RM52.99 million due to declining sales from the HDD segment and the weaker US dollar. Net profit rose 164% q-o-q to RM8.16 million. The company’s profit margin improved due to less rework and quality issues, and reinvestment allowances resulting in lower taxation for the quarter.

The company’s capital expenditure is estimated to be RM40 million for FY2011, down from RM112.3 million for FY2010. This is mainly because Notion has spent the bulk of capex in 2010. Of the RM40 million for 2011 more than RM20 million will go towards Thailand’s expansion”.