Results

3QFY13: Revenue RM62.2m (-35.1% yoy, +22.3% qoq), EBITDA RM23.6m (-25.5% yoy, +30.3% qoq) and normalized PATAMI RM7.0m (-64.0% yoy, +>100% qoq).

Although 9MFY13 top line came within our expectations, core net profit of RM10.6m came in above our expectations, accounting for 114% but missed street estimates as it only accounted for 53%.

One-off items arising from the fire incident on New Year eve amounted to RM24.9m consisting of damage to machinery and equipment (RM12.7m), inventory (RM8.3m) and building and fixtures (RM3.9m). While, the insurance claim amount for material damage of RM35.8m has been offered by the insurer on 12 Aug. The claim has been accrued in 3QFY13 giving rise to cumulative exceptional gain of RM8.2m (net of tax of RM2.8m).

Deviations

Revenue mix with stronger contribution from camera segment which in turn elevated EBITDA margin.

Dividend

None (3QFY12: 1 sen)

Highlights

Revenue breakdown in 3QFY13 was HDD with RM20.9m, camera with RM30.4m and industrial / automotive with RM10.8m resulting in product mix ratio of HDD : camera : industrial / automotive equivalent to 34% : 49% : 17%.

Camera segment showed good recovery and rebounded strongly during the quarter and the company expect the spill over will continue into 4QFY13. HDD and auto / industrial segments will undergo a reasonable growth in coming quarter.

3QFY13 utilization rate stood at 75% and expect to improve with more orders from existing and new customers.

The Business Interruption Policy or Consequential Loss claim is in progress and is estimated to be completed by end of 2013.

Risks

FOREX, raw material, labour costs and execution risks.

Forecasts

Tweaked model according to deviations above which resulted in FY13-15 EPS revisions by +66.3%, -16.6% and - 13.7% respectively.

Rating

Hold, TP: RM0.85

Positives – Notion is in a better position compared to its peers as it has diversified away from HDDs. The company is well positioned to benefit from growth opportunities in the higher-margin camera segment. Appreciation of USD against MYR.

Negatives - Increasing raw material prices and SSD as substitute.

Valuation

Maintain our HOLD call on the equity with higher TP of RM0.85 (previously RM0.71) after rolling over our valuations.

Our TP was derived based on DCF with WACC of 11.6% and TG of 0%.

Source: Hong Leong Investment Bank Research - 16 Aug 2013