OSK downgrades Notion VTec on wider quarterly loss

KUALA LUMPUR (Feb 22): OSK Research Sdn Bhd has downgraded its earnings forecast for Notion VTec Bhd after the hard-disk drive (HDD) component manufacture reported a wider quarterly loss.

The weaker financials resulted from the disruption in the firm's operations after its factory in Klang caught fire on new year's eve.

In a note today, OSK analyst Chan Jit Hoong said the core earnings forecast downward revision of 29% and 27% for financial years ending September 30, 2013 (FY13) and 2014 (FY14), has prompted a 28% reduction in OSK's target price for Notion to 63 sen from 88 sen previously.

At 3.55 pm, the stock fell three sen to 71 sen.

Chan who has also downgraded Notion to a "sell", said the firm's management has painted a "gloomy outlook" on the company after the fire incident.

Notion reported a net loss of RM22.73 million in the first quarter ended December 31, 2012 (1QFY13), almost five times the net loss of RM4.83 million a year earlier.

The quarterly financials came in below expectations. Chan said Notion's 1QFY13 core earnings of RM2 million accounted for only 5% and 4% of OSK's and consensus full-year estimates.

According to Chan, while the outlook for Notion's HDD unit appears dim, its camera segment, however, shows growth opportunities.

This is on a potential 12% rise in shipment for cameras with interchangeable lens (CIL) this year, Chan said, quoting data from the Camera & Imaging Products Association.

"However, with the other headwinds in mind, we are cutting our FY13/FY14 core earnings forecasts by 29% / 27% as we reckon that the fire incident may have capped production, making it difficult for Notion to capitalise on any uptrend momentum in CIL demand," Chan said.

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