Notion is acquiring a 19.9% stake in Alcyone, an Australian-based silver production  company  via the subscription of the latter’s rights shares.  We  are  surprised  by  the  move,  as  we  think the company’s cash could have  been  put  to  better  use.  We  make  no  change  to  our  forecast  and fair  value  pending  the  analyst  briefing  on  the  acquisition  tomorrow. Maintain NEUTRAL, with a MYR0.74 FV. 
 
- Buying  into  Alcyone.  Last  Friday,  Notion  announced  that  it  will  be subscribing  to  975m  of  the  un-allotted  rights  issue  shares  belonging  to Alcyone  for  a  total  cash  consideration  of  AUD4.9m  (MYR14.7m).  Post rights issue, Notion will have a 19.9% stake in Alcyone. Alcyone will also issue  free  487.5m  share  options  to  Notion  (exercise  price:  AUD0.01, expiry date: 31 July 2015). Management shared that the rationale for the acquisition is to explore the possibility  of further downstream and value-added activities for silver and other metals.  

- Company  background.  Alcyone  is  a  silver  (Ag)  production  company based  in  South-East  Queensland,  Australia.  Under  its  Texas  Silver Project, it has a total resource base of over 23m ounces (oz) of Ag at an average  grade  of  54g/tonne  Ag  at  Twin  Hills  Mine  and  Mount  Gunyan Deposit. We gathered the funds raised from the rights issue will be used to: i) repay debts, ii) redeem convertible securities, iii) upgrade the plant &  equipment  for  its  Texas  Silver  Project,  and  iv)  provide  additional working capital.

- Forecasts & risks. We make no changes to our forecasts. Key risks to our  earnings  forecast  include:  i)  a  weaker-than-expected  PC  market affecting  demand  for  hard  disk  drives  (HDDs),  ii)  waning  demand  for cameras  with  interchangeable  lenses  (CIL),  and  iii)  new  businesses  in the robotics, O&G and aerospace industries not taking flight.

- Investment  case.  We  are  surprised  by  the  move  and  think  the company’s cash could be put  to  better  use  to  expand  its  business  and capture greater economies of scale. We make no change to our forecast and FV pending the company’s analyst  briefing  tomorrow  on  the  deal.  Maintain NEUTRAL with MYR0.74 FV, pegged to 8.0x CY14 EPS.

Source: RHB