As  Notion’s  2QFY13  core  earnings  of  MYR2.4m  missed  our  and consensus  estimates,  we  are  cutting  our  FY13  and  FY14  core  earnings forecasts by 34% and 15% respectively. Pending more updates from the company’s analyst  briefing  today,  we  reiterate  our  SELL  call  on  the stock, with our FV unchanged at MYR0.63, based on a 6.4x CY14 P/E.  

-  Below expectations. Notion’s 2QFY13 core earnings of MYR2.4m (+8% q-o-q, -85% y-o-y), when annualized, missed our and consensus full-year estimates.  The  weak  performance  was  mainly  due  to:  i)  a  slowdown  in orders  for  hard  disk  drives  (HDD)  and  camera  components,  ii)  the  fire that  ravaged  its  Klang  manufacturing plant on New Year’s Eve,  and  iii) the  group  implementing  minimum  wages  early  this  year.  No  dividends were declared for the quarter.

-  Sales orders jump in April. Although 2QFY13 revenue was tepid (+4% q-o-q,  -40%  y-o-y),  Management  in  its  notes  to  the  financial  statement said  sales  orders  picked  up  by  30%  in  April.  Based  on  what  it  deems  a sustainable trend, Management expects the company’s 2HFY13 revenue to  improve  by  30%-40%  compared  to  1HFY13.  It  also  sees  profits  and margins going up accordingly.  

-  …but  we  are  staying  cautious  for  now.  Western  Digital  and  Seagate have  guided  for  2QCY13  worldwide  HDD  shipments  to  be  flat  on  a sequential  basis.  The  total  addressable  market  in  1QCY13  stood  at 135.4m, down 0.3% q-o-q and 8% y-o-y. Meanwhile, global shipments for cameras  with  interchangeable  lens  showed  signs  of  weakness  by contracting 37% q-o-q (-16% y-o-y) in 1QCY13.

-  Maintain  SELL;  FV  kept  at  MYR0.63.  We  are  slashing  our  FY13  and FY14  core  earnings  forecasts  by  34%  and  15%  respectively  to incorporate  a  higher  opex  assumption.  At  the  same  time,  we  are  rolling over  our  valuation  to  CY14  and  ascribing  the  same  6.4x  P/E, representing a 20% discount to the stock’s 7-year average forward P/E of 8x.  From  this,  we  derive  a  MYR0.63  FV,  the  same  as  before.  Maintain SELL,  pending  more  details  from  the  company’s analyst  briefing  later 
today.

Source: RHB