Notion  assured  investors  that  its  investment  in  Alcyone  will  not  derail its  focus  on  being  a  high-precision  components  manufacturer.  We  are cautious  on  Notion’s  investment  into  an  unrelated  business.  Its operations  in  Thailand  were  unaffected  by  the  recent  floods.  All  in, maintain NEUTRAL on the stock, with MYR0.74 FV, pegged to 8.0x CY14 EPS. 
 
- Purchase  justification.  Notion  shared  that  its  investment  in  Alcyone Resources  (Alcyone)  (AYN  AU,  NR)  will  not  derail  its  focus  on  being  a high-precision  components  manufacturer.  Management  explained  that the purchase was to take advantage of the Australian silver (Ag) miner’s turnaround story and to tap into the current depressed Ag prices.  

- More dosh for Alcyone? In  addition to the subscription of the untaken rights  issue  belonging  to  Alcyone,  Notion  was  offered  an  option  to subscribe for a 10.0% interest bearing promissory note (PN) of AUD2.5m (MYR7.5m), which can be converted into 500m Alcyone shares attached with 250m free share options. In the event of conversion of the PN and the exercise of all the share options held, Notion will increase its equity interest in Alcyone to 36.1% (from 19.9%).

- Company  update.  According  to  Notion,  business  operations  at  the Rojana Industrial Park in Thailand was unaffected by the recent flooding. However,  the  global  outlook  for  hard  disk  drives  (HDDs)  and  cameras with  interchangeable  lenses  (CIL)  markets  remain  bleak  and  we  expect this to negatively impact Notion.

- Forecasts. We make no changes to our forecasts.

- Investment  case.  We are cautious  on  Notion’s  investment  into  an unrelated  business  in  which  management  has  no  prior  experience  and limited opportunities for synergistic benefits. In addition, if Notion were to equity account for its 19.9% stake in Alcyone, it could prove negative for the  company,  given  that  the  latter  is  still  loss-making.  All  in,  we  remain NEUTRAL  on  the  stock,  with  its  MYR0.74  FV  unchanged,  pegged  to 8.0x CY14 EPS. This is in line with its 7-year historical P/E.

Source: RHB