Notion’s  FY14  (Sep)  core  loss  of  MYR19.6m  was  greater  than our/consensus  expectations  on  continued  weakness  in  its  overall utilisation rate  due to subpar camera component sales.  Given the lack of earnings visibility in the near term, we maintain our NEUTRAL call as we  trim  our  TP  to  MYR0.45  (based on  an  average  of  8x  FY15  P/E  and 0.6x FY15 P/NTA), implying an 8.2% downside.

Below estimates.  Notion VTec’s (Notion)  FY14 revenue of MYR199.4m was  11.1%  lower  YoY  as  overall  utilisation  rate  remained  subdued  on continued  weakness  in  its  camera  segment  (-45.2%  YoY),  partly mitigated by  an  improvement in its hard disk drive (HDD) (+7.1% YoY) and  auto  divisions  (+38.4%  YoY).  As  a  result,  FY14  core  loss  of MYR19.6m was worse than both our and consensus expectations, which forecasted  a  full-year net  loss of MYR5.1m and MYR4.6m   respectively. 4QFY14  revenue  of  MYR55.3m  and  core  loss  of  MYR1.4m  were generally  weaker  YoY  due  to  a  lower  utilisation  rate  for  its  camera segment, but better on a sequential basis  due to increased orders from HDD customers. 

Other  highlights.  Notion  provided  for  a  full  impairment  of  its  20% interest in Alcyone Resources (AYN AU, NR) at MYR9.8m , given that the mining  company  is now  under receivership. We  laud  the move  to  help clean  its  books  as  the  investment has failed  to  live  up  to  expectationsthus  far.  Meanwhile,  management  guided  that  the  production  of  its smartphone  glass  components  will  only  commence  in  Mar  2015  (from early FY15 previously), as it is still finalising some technical issues. 

Forecasts  and  risks.  We cut  our  FY15-16  EPS  by 20.8-28.0%  as  we believe  the  delay  in  the  commencement  of  its  smartphone  component arm  would  likely  affect  its  profitability.  Key  risks  to  earnings  are:  i)  a better-than-expected  PC  market,  which  should  lift  demand  for  HDDs, and ii) a recovery in demand for cameras.

Maintain  NEUTRAL.  Following  our  earnings  revision,  our  TP  now stands at MYR0.45  (from MYR0.49),  based on an unchanged valuation methodology  at the  average  of  its 8x  FY15  P/E  and 0.6x  FY15 P/NTA.As  we  believe  near-term  earnings  headwinds  could  keep  investors  at bay for the time being, we maintain our NEUTRAL call. The key re-rating catalyst  would  be  the  materialisation  of  its  diversification  into  the smartphone component segment.

Source: RHB