Following  Notion’s  analyst briefing, we upgrade our call to NEUTRAL. We like Management’s efforts in trying to diversify its business into different areas. Its HDD segment is also picking up. However, its camera division may face some headwinds in the short term. Our FV now stands at MYR0.75, pegged to 7.2x CY14 P/E.

- Pent-up demand for antidiscs. Management shared that sales orders had spiked by 30% in April, thanks to its hard disk drive (HDD) business, which had benefited from the pent-up demand for antidiscs from the enterprise segment. Although the general HDD sector is lackluster, mirroring the PC market, the enterprise division is growing robustly.

- Slowing camera biz. Management shared that its cam barrel sales picked up pace in May but generally, the camera with interchangeable lens (CIL) industry had slowed down in 1QCY13. Its largest client Nikon expects its shipment volume for CIL and IL to be tepid for the next six months and rebound in the last quarter. Thus, we expect full year revenue contribution to Notion from this business to dip on a y-o-y basis.   

- Diversifying its business. To reduce its reliance on the HDD and camera businesses, which collectively contribute ~85% to its total revenue, Notion is diversifying into electrical components for the oil & gas (O&G) and aerospace industries. Management is targeting sales enhancement of MYR5m-MYR10m from the former while remaining tight-lipped as regards to the latter. Also, the company is making inroads into the robotics business and we gather that 40 units are already in the pipeline to be sold at MYR40k-MYR60k/unit.

- Upgrade to NEUTRAL, FV revised to MYR0.75. With more information on hand, we revise our FY13 and FY14 core earnings forecasts up by 11% and 5% respectively and also introduce our FY15 numbers. We reckon all the recent development bodes well for Notion and thus, instead of attaching a 20% discount to the stock’s seven-year average forward P/E of 8x, we are reducing it to 10%. Hence, pegging Notion to 7.2x CY14 P/E, we derive a new FV of MYR0.75 (previously MYR0.63). Accordingly, our recommendation is upgraded from SELL to NEUTRAL.

Source: RHB