Notion’s 9MFY13 core earnings of MYR8.9m (-77%  y-o-y)  were  below expectations. No dividends were declared during the quarter. ll in, we cut  our  FY13-FY15  forecasts  by  12-21%  to  reflect  higher  cost assumptions.  However,  we  maintain  our  NEUTRAL  call  on  the  stock with a new FV of MYR0.74, ascribing a higher P/E multiple of 8.0x, as we are encouraged by its efforts to diversify into new businesses.  
 
- Below  expectations.  Notion’s 9MFY13  core  earnings  of  MYR8.9m  (-77% y-o-y) were below expectations, representing only 48% and 45% of our  and  consensus’  full-year  forecasts.  In  3QFY13,  core  earnings improved  by  84%  q-o-q  to  MYR4.4m,  thanks  to  improved  sales  orders and  the  resumption  of  normal  operations  at  its  Klang,  Selangor, manufacturing  plant  that  suffered  fire  damage  on  New  Year’s  Eve. However,  core  earnings  fell  74%  y-o-y  due  to  lower  sales  orders  and average selling prices (ASP)  – last year’s operating metrics were better as Notion was able to gain from the catastrophic floods in Thailand.

- Outlook.  Industry  leaders  Western  Digital  and  Seagate  have  guided 3QCY13 worldwide hard disk drive (HDD) shipments to grow 2-6% q-o-q to  135-140m  units  on  the  back  of  a  seasonal  uptick  in  gaming  and branded products. Camera-maker Nikon has revised down the industry’s global  shipment  forecast  by  7%  to  49.5m  units  for  FY3/2014  from  53m units, citing decelerating growth for non-reflex cameras and slower China economic recovery.

- Forecasts. We lowered our FY13-FY15 core earnings forecasts by 21%, 12%  and  12%  respectively  after  incorporating  higher  opex  assumption and higher effective corporate tax rate. 

- Investment case. We now peg the stock to 8.0x CY14 EPS (from 7.2x CY14  EPS)  as  we  are  encouraged  by Notion’s  efforts  to  diversify  into new businesses. However, there are some short-term headwinds in the camera  segment,  as  guided  by  its  major  customer,  Nikon.  Hence,  we maintain  our  NEUTRAL  recommendation  on  the  stock  with  a  newly revised FV of MYR0.74 (previously MYR0.75).

Source: RHB