Notion's  1QFY13  core  earnings  of  MYR2m  were  below  our  and  consensus estimates.  No  dividends  were  declared  this  quarter.  We  are  cutting  our  FY13/FY14 core  earnings  forecasts  by  29%/27%  respectively.  Ascribing  the  same  CY13  PE  of 6.4x, we derive a new FV of MYR0.63. Downgrade to SELL.  

Below  expectations.  Notion's  1QFY13  core  earnings  of  MYR2m  were  below expectations,  representing  only  5%/4%  of  our/consensus  full-year  estimates.  During  the quarter,  its  revenue  shrank  by  45%  q-o-q  (+24%  y-o-y)  as  the  plant  of  wholly-owned subsidiary, Kaiten Precision (M) SB, caught fire on New Year's Eve. In turn, the company registered  a  headline  loss  of  MYR23m  after  booking  one-time  expenses  related  to  the unfortunate  incident  -  management  expects  to  claim  approximately  MYR50m  from  its insurer  and  also  expects  the  damaged  plant  to  be  restored  by  June  2013.  Overall profitability margins in 1QFY13 swung to negative territory, with EBITDA/PBT/PAT margins at -26%/-46%/-47% respectively. No dividends were declared for the quarter.

Management  paints  a  gloomy  outlook. Management expects flattish orders in 2QFY13 but  projects  a  rising  trend  in  2HFY13  on  the  back  of  a  modest  recovery  in  the  global economy.  Furthermore,  Notion  added  that  the  minimum  wage  ruling,  which  came  into effect this year, will have a material impact on its bottomline - it estimates wage expenses to increase by approximately MYR6m per annum. On the other hand, capex is expected to be  minimal  this  year.  As  for  FY13,  management  expects  to  register  lower  revenue  and profits as compared to FY12.
 
Downgrade  to  SELL,  FV  revised  to  MYR0.63. While  the  HDD  outlook appears dim,  its camera  segment  exhibits  growth  opportunities.  The  Camera  &  Imaging  Products Association (CIPA) expects shipments for cameras with interchangeable lens (CIL) to rise by  about  12%  in  CY13.  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  capitalize  on  any  uptrend momentum  in  CIL  demand.  Ascribing  the  same  CY13  PE  of  6.4x  (a  20%  discount  to  its seven-year average forward PE of 8x), we derive a FV of MYR0.63. Downgrade to SELL.

Source: OSK