Notion VTec Bhd
(June 24, RM2.98)
Initiating coverage at RM3.03 with a buy call and a target price of RM4.50: Given strong demand for consumer electronics, Notion VTec Bhd (NVB) is investing about RM190 million in FY10 and FY11 in Plant 3 in Klang (2.5” HDD components) and Plant 4 in Ayutthaya, Thailand (camera components).
NVB has already secured two new clients — Samsung and Alphana Tech — for 2.5” HDD base plates and spindle motor hubs, and could add Western Digital (WD) and Hitachi — its existing anchor clients — for 3.5” HDDs.
Orders for 2.5” HDDs produced at its old plant have exceeded expectations at 600,000 units per month versus 300,000 three months ago. For the Thailand plant, NVB has secured orders from its key client and strategic shareholder, Nikon. It expects to introduce new camera products and look for new clients in the vicinity.
NVB’s earnings track record, which remained positive in 2009 despite the economic downturn, speaks volumes about its capability in a competitive, fast-moving HDD industry.
We expect NVB’s profit to grow at 39% CAGR in FY10-FY12F, driven by the ongoing PC replacement cycle and sustainable demand for 2.5” HDDs, underpinned by growing demand for netbook PCs and low-priced traditional notebook PCs.
We initiate coverage with a buy call and RM4.50 target price pegged to 9.5 times FY11F PER, +1SD from its five-year historical average, but below its peak of 13.7 times in 2007.
Our valuation is supported by NVB’s: (i) superior PBT margins; (ii) strong earnings growth; and (iii) high ROE of 27% to 30% for FY10-FY12F. Trading at only 6.4 times FY11 PER, this is an ideal entry opportunity.
NVB is in a sector that is clearly out of the woods, with strong growth potential over the next two years buoyed by strong demand from the consumer and corporate space. Potential catalysts include new clients and new strategic investors via the proposed 10% share placement (pending approvals). — HwangDBS Vickers Research, June 24
Written by Kay
The Edge Malaysia
No comments:
Post a Comment