Good sharing. Still have to make sure Dufu has the cap ( unless they still have 30% idle cap to support) to absorb the extra order as nobody will buy so many additional CNC machines keep idling in the factory waiting misfortune happen to competitors.
Shares of rivals Dufu Technology Corp. and JCY International climbed 2.8% and 7.6%, as market participants bet those companies could snatch some potential orders away from Notion.
NOTION: ....The incident is expected to affect Notion's camera, hard drive and automotive segments, but not impact its new lifestyle consumer product and tubing project, as those products will be manufactured in another facility, the company said. The company plans to fully restore production from the fire-hit facility in eight months.
Shares of rivals Dufu Technology Corp. and JCY International climbed 2.8% and 7.6%, as market participants bet those companies could snatch some potential orders away from Notion.
DUFU - Reiterate upgrade to BUY with target price of RM2.15 post meeting with channel sources
Situation:
Two highly probable outcome for DUFU under consideration:
i) The company with loss capacity from fire incident will rent 250 CNC from DUFU's newly planned expansion plants plus 30 units of CNC that are currently idle from maintenance.
ii) The company with loss capacity from fire incident will temporarily transfer 30% production loss of 1 year to DUFU
Outcome:
i) Monthly financial gain (rent income) of RM850k - RM1mil per month for one year
ii) Monthly profit of RM700k - RM800k for one year
Risks:
i) DUFU will require to incur further capital investments, reducing amount of dividend paid in the future for a short period
ii) DUFU will need to temporarily absorb costs of production staffs transfer from the company with fire incident. Although what we gather is both parties are negotating to bear the cost 50% each.
Other possible outcomes:
We gather that the company with fire incident are negotiating with 3 parties for
i) production loss and staffs transfer
ii) CNC rental
iii) Premise rental
However, we believe that DUFU is the frontrunner due to:
i) Close business relationship between two companies
ii) DUFU's technology are superior to its peers due to continued investment from holding company and close ties from Taiwan
We have to be professional and knows what you write and I rebutting your findings:
1. There is no way Dufu has 150 CNC Machine spare capacity for rent and I have look at the Annual Report FY 2016 and 1H Qtr report, there were no material Capex expenditure involved since 1 Jan 2015 to match that expansion of having 150 CNC Machine surplus capacity .
2. Common sense would tell you every company would expand its business progressively based on secured business and not buy 150 CNC machines to wait for business and wait for Notion disaster to rent it out.
3. Dufu plant is in Penang, how to transfer staff over from Klang. If you are Dufu , would you want your competitor staff to be at your factory to learn yout trade secret and technology.
4. Both your suggestion does not make business sense. The likely outcome, is Seagate and WD would channel the component to Dufu. Dufu is a qualified vendor of both Seagate and WD. For other components like Camera Parts, Dufu plant need to be qualify by Notion Customers before you can transfer the production. This process take about 2 months..
Dufu at 140 is trading at Historical PE 8.84 (based on FY 16 EPS of 15.83 Sen) and my estimate EPS for FY is 16.1 Sen (1H 7.9 Sen + Q2 4.1 X2) giving it a forward PE 8.7. At PE 10, the valuation would be 161. I am still trying to find out whether Notion HDD Sales due to the fire incident would flow into Dufu, if so, then the valuation would be rerated.
A discussion with the management of Dufu by a friend before Q2 result was given the guidance FY 17 would be better than FY16 in terms of operating profit after taking away all exceptional gain. i.e take away all exceptional income. For Q1 2018, both Seagate and WD has reported better results and higher shipments of HDD per terabyte (Source Q1 2018 Report). Western Digital reported 7% growth in revenue and 7.6% growth in HDD shipments. Seagate reported 9.4% growth in revenue and 13 % growth in HDD shipments DUFU also has 40% global market share in the HDD components it manufactured. With the higher shipments of HDD by both Seagate and WD, I believe DUFU should be good this coming qtr 3 reporting. Dufu coming Q3 result should be good given both Seagate and WD reported higher shipments of HDD and that Dufu had 40% global market share as stated by management.
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luckyjb
161 posts
Posted by luckyjb > 2017-10-09 09:40 | Report Abuse
dufu from 2019 0.59 to 2017 oct 1.4 increase about 260%
Penta from about 0.70 to 2017 oct 4.74 increase about 650%