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Author: davidtslim   |   Latest post: Thu, 13 Feb 2020, 10:40 PM

 

NOTION – PART I - by Davidtslim: A high precision metal parts Specialist who rides on Electronic Manufacturing Services (“EMS”)

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1.0 About Notion Vtec

Notion Vtec Bhd is engaged in manufactures precision metal components, tools, and other related products. In addition, the company also deal in surface treatment, electrolysis nickel plating, chrome plating, electroplating, and anodizing metal. It operates in manufacturing segment comprises of manufacturing of high volume precision components and tools including design and incidental services.

1.1

Products and Services:

Notion’s capable of supplies high precision (mainly metal), engineered, ready to assemble precision turned, milled, drilled and ground parts to multi-nationals customers. It currently operates at 4 facilities.

Two factories located on 14 acres, collectively on its own freehold land in Meru, Klang and one on a 6 acre land, collectively in Ayutthaya, Thailand. They have also established a manufacturing base in Gelang Patah, Johor to serve the southern region (like supporting VSI, SKPRES etc) and Singaporexcustomers.

Notion’s products and services can be broken down into four main segments:

(1) Hard Disk Drive (HDD)

(2) Automotive (Braking System)

(3) Engineered Products (Camera SLR interchangeable lens and others)

(4) Electronic Manufacturing Services (EMS)

 

2.0 NEW BUSINESS

Why NOTION has been successfully selected by European multinational corporation (“MNC”) [best known for its home appliances]?

Extremely High Barrier of Entry

It could probably take more 1 year for NOTION to secure such MNC customer due to the stringent CSR audit requirement which may include more than just technical capabilities, but in other aspects such as health, safety, environment, labour housing and etc. Now, both Notion’s plants in Johor and Klang are under approved vendor status by this European MNC client.

 

Strong Value Preposition and Strategic Geographic

Why did European MNC shift their EMS supply chain to Malaysia? My personal views are as follows:-

- Better protection of its products IP and design which they are still not comfortable in china.  

- Better quality control as many of is sub-contractors (Skpres, VSI, Ataim, Mtag) are located in Malaysia.

- Notion has the completeness of metal fabrication machinery and facilities.

- Notion has the in-house expertise and complete services that able to provide fast response and turnaround time solution for European MNC new products.

 

3.0 EXISTING BUSINESS

Electronic Braking System (“EBS”) Market is Growing – Secured New Customers

Notion is a major player in the car industry for EBS its precision metal parts. Their EBS products can be found in Mercedes, BMW and Japanese cars. One in every six cars in the world has plungers made by Notion.

The company recently secured three new automotive customers, namely Delphi Technologies, Hilite International and BorgWarner, with orders expected to start coming in within the next 3-6 months.

They are one of the largest auto braking plunger suppliers in the world where they produce 30 million pieces of plungers annually for 15 million cars, as each braking system would need two plungers. Given that the global production of cars is about 90 million annually, it essentially means that one in every six cars in the world has plungers made by Notion.

Notion EBS’s clients include ZF TRW (a subsidiary of ZF Friedrichshafen AG) and Continental AG, both of which are listed companies from Germany, as well as Diamet Corp, a subsidiary of Japan’s Mitsubishi Materials Corp. Their EBS products can be found in Mercedes, BMW and Japanese cars.

According to its executive chairman guidance, automotive segment’s revenue contribution to the group to increase to 40% in the financial year ending Sept 30, 2020 (FY2020), from 35% in FY2019.

 

4.0 CATALYSTS

  1. Strong Sales Growth from EMS with High Margin - Strong sales growth from its EMS segment where it has secured sizeable orders from European MNC customer which famous with its premium home appliances products that can give Notion higher margin compared to HDD and Automotive segment.
  1. Secured Sizable Orders from European MNC customer – which will provide strong earnings visibility in the next 6 months to 1 year.
  1. More Orders from Automotive Division - Growing automotive orders (both EBS and new order for fuel injection parts) where automotive normally has higher barrier of entry with strict requirements.
  1. Strategic Move into High Margin Business - Strategic move into precision fabricated machined metal parts (higher margin with increasing volume) from 100% machined parts manufacturer, which helping Notion to generate more sales for its newly investment of capital expenditure into machinery (180mil over past 2 years).
  1. Benefited from Lower Raw Material Costs - Benefited from lower aluminum price (its raw material) and more efficient new sophisticated and highly precise machines which has high-level of automation, please refer to the graph as follows:-

 

5.0 PEERS COMPARISON

First, we need to understand the difference among HDD listed players include DUFU, JCY and precision related companies include UWC, iSTONE, GREATECH.

 

Among all EMS and related players, only NOTION is traded below NTA. NOTION business depends on precision facilities and most of the fixed assets are newly bought equipment and machineries – productive assets with high value. Its NTA at RM1.24 but share price was at RM1.05 (at the time of this article was prepared). Notion has spent about 100mil and 80mil capex in 2018 and 2019 respectively. 

 

6.0 FINANCIALS

Based on the projected revenue of 320mil and 400mil for FY2020 and FY2021 in their latest quarterly report. The financials in the past, this year and next year would look in this way:-

If the guided revenue in FY2020F (refer to their last qtr report) which is RM320 million turns out to be true, which is likely based on the sales growth from both existing and new EMS businesses, it would turn out to be a record high revenue historically and profit should improve accordingly.

 

7.0 CONCLUSION

For not putting too much information in one article, I have decided to split it into PART I and PART II. After PART I and PART II, it will give you a better picture about NOTION and understand why NOTION is undervalued in my opinion with tremendous growth in the future especially on their EMS segment in coming 6-12 months.

In PART II, I will explain and tell more about the followings:-

  1. Explain about the technical, engineering and technology capacities about Notion (including some machines photo).
  1. Potential in Aerospace, Medical Devices industry as Notion has aerospace and medical devices certification in Notion Johor.
  1. Many EMS providers are into design, plastic parts, PCB and assembly but NOT into metal fabricated or machined parts. Notion has a unique position in this area.
  1. A closer peer – UWC in machined and fabricated parts.
  1. Notion’s investment in aluminium extrusion technology.
  1. SWOT Analysis on Notion.
  1. Detailed Financial Analysis – Notion as a Net Cash Company, future CAPEX etc.

 

If you interested on my analysis report, please contact me at davidlimtsi3@gmail.com

You can get my latest update on share analysis at Telegram Channel ==> https://t.me/davidshare

 

  Disclaimer:

This writing is based on my own assumptions and estimations. It is strictly for sharing purpose, not a buy or sell call of the company and the contents of this report should not be considered as professional financial investment advises or buy/sell recommendations. I strongly encourage you to do your own research and take independent financial advice from a professional before you proceed to invest.

I make no representations as to the accuracy, completeness, correctness, suitability, or validity of any information on my report and will not be liable for any errors, omissions, or delay in this information or any losses and damages arising from its display or usage. All users should read the posts and analysis the information at their own risk and we shall not be held liable for any losses and damages.

 

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Labels: NOTION

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Chart Stock Name Last Change Volume 
NOTION 1.30 0.00 (0.00%) 5,103,700 

  5 people like this.
 
Eugene Kua Good stuff!
23/01/2020 2:41 AM
excelyou Bonus issue “indicate uptrend”.

OPR cut, another “push”.
23/01/2020 8:18 AM
hoonghoong528 excelyou, when going to have bonus issue?
23/01/2020 12:26 PM
ramada David, I hope you can study KPower. They targeted RM1 bil order book in FY2020. Their order book was merely RM11 mil in FY2019.

If they achieved this target , the order book is 90 times bigger than previous.
23/01/2020 3:30 PM
excelyou Hoong , check announcement
23/01/2020 3:37 PM
excelyou At least RM3.70 - RM6.50!!!
12/02/2020 7:55 PM


 

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