PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
MARKET DATELINE

30 April 2010

Notion Vtec Share Price

Fair Value
:
:
RM3.20
RM4.64
Proposes Private Placement and Warrants Issue Recom : (Outperform)
(Maintained)

Table 1 : Investment Statistics (NOTION; Code: 0083) Bloomberg: NVB MK

Net EPS Net
FYE Revenue Profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing GDY
Sep (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)
2009 172.6 36.0 25.6 8.5 12.0 - 2.6 8.1 24.0 0.2 1.6
2010f 227.7 56.0 36.2 41.5 9.0 34.0 2.4 6.5 30.0 0.1 2.0
2011f 295.1 71.8 46.4 28.4 7.0 43.0 1.9 5.1 30.1 0.1 2.8
2012f 384.5 98.1 63.5 36.6 5.1 54.0 1.4 3.8 32.0 0.2 3.7
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
♦ 2QFY10 results in line. 1HFY09/10 net profits were in line with our RHBRI Vs. Consensus
expectations and market consensus, accounting for 47% and 50% of our Above
full-year and market consensus respectively. While 2QFY09/10 revenue In Line
remained resilent qoq, net profit dropped marginally qoq due to: 1) Below

seasonal factors; and 2) higher expenses incurred from the capacity ramp
Issued Capital (m shares) 154.6
up coming into 2Q. Market Cap (RMm) 494.7
Daily Trading Vol (m shs)
♦ Proposes a private placement and free warrants issue. Notion has
52wk Price Range (RM)
299.5
3.52–0.80
proposed a private placement of 10% of its issued share capital, and an Major Shareholders: (%)
issue of free warrants on the basis of 1 for every 5 shares. Based on 14.2
Choo Wing Hong
current issued share capital of 154.6m, a maximum of 15.4m of new Choo Wing Onn 9.5
shares is to be issued for the private placement. The issue price for the Nikon 9.0
placement shares is to be based on the five-day volume weighted average
FYE Sep FY10 FY11 FY12
price, subject to a discount of up to 10%. Assuming the issue price is
EPS chg (%) - +1.1 +1.5
RM2.98 per share, the private placement could raise as much as RM45.9m Var to Cons (%) +6.5 +7.9 +17.2
cash.
PE Band Chart
♦ Dilution effects. The private placement alone will dilute Notion’s FY09/11
EPS by 6.5%. Together with the potential dilution from the free warrants
PER = 11x
(assuming an exercise price of RM3.20 per warrant), we estimate FY09/11 PER = 9x
fully-diluted EPS of 38.7 sen or a dilution of 16.4% (see table 4). PER = 7x

♦ Risks. Includes: 1) Rise in prices of raw material; and 2) Fluctuations in

the exchange rate.

♦ Acquisition of Autic Mekki. Notion previously announced a proposal to

acquire 60% of Autic Mekki Sdn Bhd for RM3.4m in cash. Upon completion, Relative Performance To FBM KLCI
Auttic Mekki will become a wholly subsidiary. While the acquisition would
be a cost effective measure in manufacturing components which require
nickel plating, we expect this would also increase net profit by RM0.5-0.6m Notion Vtec
per quarter.

♦ Forecasts. We have raised our FY11-12 by 1.1% and 1.3% after adjusting FBM KLCI

for the acquisition of Autic Mekki. Futhermore, we believe there could be

further upside to our FY11-12 earnings forecasts driven by: 1) higher-
than-expected sales of higher margin spindle motor and camera barrels;
and 2) stronger contribution from its Thailand operations stemming from Wong Chin Wai
(603) 92802158
expansion of WD and HGST in Thailand. wong.chin.wai@rhb.com.my

♦ Investment case. Following the revision of earnings in FY11-12, our Yap Huey Chiang
indicative fair value has been raised to RM4.64 from RM4.59 based on a (603) 92802171)
target PER of 10x FY 11 EPS. Maintain Outperform. yap.huey.chiang@rhb.com.my

Please read important disclosures at the end of this report.

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Table 2. Notion Vtec Quarterly Results

FYE Sep 2Q09 1Q10 2Q10 % qoq % yoy 6M09 6M10 % yoy Comments
Revenue 28.2 56.3 56.7 0.7 100.8 73.5 113.0 53.8 Up qoq and yoy due to higher
sales volume stemming from
3.5’’ & 2.5’’ base plates and
spindle motor hubs.

Operating (2.7) (3.9) (3.8) (3.5) 40.3 (10.3) (7.7) (24.9)

expenses
Other operating 0.5 1.6 2.1 33.1 >100 2.3 3.8 66.1
income

EBITDA 10.5 24.7 22.4 (6.9) >100 26.0 46.5 92.4

EBITDA margin 37.2 43.9 39.5 32.9 41.1 EBITDA margin decrease qoq
(%) and yoy due to lower
utilisation rates as well as
higher expenses due to
capacity ramp up.

Depreciation (4.6) (4.9) (5.5) 11.6 18.9 (9.0) (10.4) 16.6

EBIT 5.9 18.7 16.9 (11.6) >100 15.2 36.0 >100

EBIT margin (%) 20.8 33.3 29.8 20.7 31.9 EBIT margin decrease qoq and
yoy due to lower utilisation
rates as well as higher
expenses due to capacity ramp
up.

Finance cost (0.9) (1.0) (1.4) 36.2 53.4 (1.8) (2.4) 36.2
Income from 0.2 0.4 0.5 23.0 >100 0.4 0.9 >100
other
investments

Pre-tax profit 5.2 18.1 15.5 (14.3) >100 13.8 33.6 >100
PBT margin (%) 18.4 32.1 27.3 18.8 29.7

Taxation (0.7) (4.1) (3.3) (20.1) >100 (2.0) (7.4) >100

eff tax rate (%) 13.1 22.7 21.2 14.7 22.0

MI 0.1 0.2 0.0 (87.0) (73.1) 0.1 0.2 >100

Net profit 4.6 14.2 12.3 (13.6) >100 11.9 26.4 >100

Table 3: Utilisation of Proceeds From Private Placement

RMm
Capital expenditure 40
Working capital 4.9
Expenses relating to the proposal 1.2
Total 46.1
Key assumptions: Issue price of RM2.98 (10% discount of WAMP)

Table 4: Utilisation of Proceeds From Free warrants Issue

RMm
Working capital 112.2
Key assumptions: Exercise price of RM3.3 (10% discount of WAMP)

Table 5: EPS Dilution From Private Placement and Warrants Issue

Private Private
Placement Placement
FY09/11 (RMm) +
Warrants
Issue
Net Profit 71.8 71.8
Interest savings 2.0 7.1
Adjusted Net Profit 73.8 78.9
Share Capital^ (m shares) 170.1 204.0
FD EPS (sen) 43.4 38.7
Chg % -6.5 -16.4
Key Assumptions: Exercise price for free warrants of RM3.3, interest cost of 6%
And tax rate of 25%.

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Table 6. Earnings Forecasts Table 7. Forecast Assumptions

FYE Sep (RMm) FY09 FY10F FY11F FY12F FYE Sep FY10F FY11F FY12F
HDD 76.0 108.7 143.5 179.4 Revenue growth (%) 31.9 29.6 30.3
Camera 78.9 101.0 133.3 186.6 HDD 43.0 32 25
Others 17.7 18.0 18.3 18.5 Camera 28.0 32 40
Turnover 172.6 227.7 295.1 384.5 Auto/others 1.6 2 2

Cost of sales (112.4) (140.6) (186.4) (241.2) Gross profit margin (%) 38.3 36.8 37.3
HDD 32.0 30.0 30.0
EBITDA 64.3 91.8 113.1 148.9 Camera 46.3 45.0 45.0
EBITDA margin (%) 37.2 40.3 38.3 38.7 Auto/others 31.0 31.0 30.0

Depreciation (18.2) (22.2) (26.9) (32.7) RM:US$ exchange rate 3.30 3.25 3.20

EBIT 46.1 69.6 86.2 116.2

EBIT margin (%) 26.7 30.6 29.2 30.2

Interest income 0.2 0.4 0.9 1.5

Interest expense (3.6) (2.4) (4.9) (5.4)
Others income/exp 0.0 0.0 0.0 0.0
Exceptionals 0.0 0.0 0.0 0.0

Pretax profit 43.0 66.6 83.6 114.3

Taxation (7.0) (10.7) (13.4) (18.3)
Minority interest 0.1 0.1 0.0 0.0

Net profit 36.0 56.0 71.8 98.1

Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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