KUCHING: Notion Vtec Bhd (Notion Vtec) eyes the camera business as its new growth driver as it recently secured a new camera sub-assembly job from Nikon.
According to a research report from ECM Libra Capital Sdn Bhd (ECM Libra), Notion Vtec would initially start to produce 5,000 pieces per month in April, which would gradually be ramped up to 30,000 pieces per month from October onwards.
The research house stated that on a full-year basis, this job was estimated to enhance financial year 2012 (FY12) revenue and net profits by RM111 million and RM10 million respectively.
ECM Libra pointed out that this was significant as it represented 17.3 per cent of its estimated FY12 net profits.
The research house opined that going forward, there were opportunities for Notion Vtec to garner more sub-assembly jobs from Nikon in the future, as 30,000 pieces per month represented only 10 per cent of the total sub-assembly jobs done by Nikon’s Thailand plant currently, which could be outsourced to Notion Vtec eventually.
ECM Libra highlighted the growing camera business that was expected to make up 56 per cent and more than 60 per cent of revenue in the financial year 2011 (FY11) and FY12 respectively, up from 44 per cent in the financial year 2010 (FY10). In terms of profit contribution, the percentage composition was even higher due to the higher profit margin it enjoys.
The research house noted that contrary to popular belief, it was less exposed to the sluggish hard disk drive (HDD) industry compared with other pure HDD players. On another note, ECM Libra said Notion Vtec’s aluminium ingot plant in Ijok would start production in May, which it estimated that this venture would enhance the group’s revenue and net profit by approximately RM25 million and RM3.7 million respectively on a full-year basis.
The research house added that revenue from this new venture was denominated entirely in ringgit, this helping to reduce the impact of adverse movements in exchange rates.
ECM Libra revealed that Notion Vtec was applying for Multimedia Super Corridor (MSC) status company, which if successful, would help to save on RM8 million to RM10 million of tax payments, boosting cash flows and net profits. Results of this application would be known in one month’s time.
As the research house factored in earnings contribution from the new sub-assembly job for Nikon and the new aluminium ingot plant, it raised its earnings by 13 per cent, 25.8 per cent and 26.5 per cent for FY11, FY12 and FY13 respectively.
As a result, ECM Libra’s target price for Notion Vtec rose to RM2.50 per share, based on historical five-year average price over earnings (P/E) of 8.7 times.
It added that dividend payment was expected to remain at 20 per cent payout,
yielding 2.7 per cent at current price.