NOTION VTEC BERHAD (�Notion� or the �Company�) by ddmbkX

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									NOTION VTEC BERHAD (“Notion” or the “Company”)
RESEARCH REPORT FOR THE SIX (6) MONTHS FINANCIAL PERIOD ENDED
31 MARCH 2006

1.   FINANCIAL RESULTS

     Summary of the proforma consolidated results for the past three (3) financial years ended
     (“FYE”) 30 September 2002 to 30 September 2004, the audited results for FYE 30 September
     2005 and the unaudited cumulative financial year to date (also referred to as the current
     unaudited 6-month financial period ended 31 March 2006 under review) of Notion and its
     subsidiaries (“Notion Group” or “Group”) are set out below:

                                                  Proforma                        Audited   Unaudited
                                    FYE 30         FYE 30          FYE 30         FYE 30   cumulative
                                   September      September       September      September   financial
                                      2002           2003            2004           2005   year to date
                                    RM’000         RM’000          RM’000         RM’000     RM’000

     Turnover                         13,951          27,801         57,219        79,288        39,751

     Profit before tax (PBT)         (1,212)          3,925          14,402        22,311        13,883

     PBT Margin (%)                      N.M.         14.12          25.17            28.14      34.92
                                                                                  2
     Profit after tax and            (1,221)          3,935          11,746           18,644     10,514
     minority interest (PATMI)
                                     1                1              1                3          5
     Gross earnings per share            (0.56)           1.80           6.60             9.17       9.47
     (EPS) (sen)
                                     1                1              1             3, 4          5
     Net EPS (sen)                       (0.56)           1.80           5.38             7.67       7.17


     Notes:

     N.M.     Not meaningful

     1.       Computed based on the number of ordinary shares of RM0.10 each in Notion (“Shares”)
              assumed in issue before the public issue of 218,159,760 Shares (“Assumed Shares”), as
              extracted from the Prospectus dated 11 May 2005

     2.       PATMI includes pre-acquisition profit of RM5,340,787

     3.       Computed based on weighted average number of Shares in issue of 243,159,760 Shares, which
              was arrived at based on the Assumed Shares and weighted average number of the 75,000,000
              public issue shares issued in June 2005

     4.       Net EPS as extracted from the 2005 Annual Report is 7.8 sen, computed based on PATMI less
              pre-acquisition profit and the weighted average number of Shares in issue of 170,439,847
              Shares

     5.       Based on annualised earnings and the number of Shares in issue of 293,159,760 Shares




     .




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2.   DIVIDEND

     The Board of Directors of Notion had on 24 May 2006 declared an interim tax-exempt
     dividend of 2 sen per Share in respect of the financial year ending 30 September 2006. The
     date of entitlement and payment date of the declared dividend shall be announced in due
     course.


3.   INDUSTRY OUTLOOK

     Volume-manufacture of hard disk drive (“HDD”) components has been and will be the
     mainstay of the Notion Group. The Group has also taken advantage of other related business
     opportunities presented by the growing consumer electronics industry, namely, digital
     cameras, video cameras and audio-visual products. Therefore, the immediate and long-term
     outlook of the HDD and consumer electronics industries would be of pertinence to Notion.

     HDD Industry

     HDD demand is seen to be growing steadily. The worldwide HDD shipment is expected to
     grow positively at a compounded annual growth rate (“CAGR”) of 8.3% over the period 2004
     to 2008. The sources for HDD industry growth in the years ahead are poised to come from
     two major areas: the traditional computing market and the consumer electronics market.
     Growth rates (based on CAGR over the period 2004 to 2008) of the respective segments of
     the HDD industry are highlighted below.
     -       global HDD shipment is projected to grow at 8.3%;

     -       global server market is projected to grow at 9.7%;

     -       desktop / personal computers market is projected to grow at 6.8%;

     -       notebook market is projected to grow at 13.7%; and

     -       non-traditional computing applications, namely designed for consumer electronics
             with built-in HDDs such as digital cameras, digital video recorders, digital
             camcorders, gaming consoles, personal digital assistant (PDAs), etc., are projected to
             expand at 52.7%. Nevertheless, personal computers and notebooks continue to be the
             main products that consume most of the HDD production.

     (Source: Frost & Sullivan, Executive Summary: Strategic insights of the HDD market, March 2005)

     The President of the Semiconductor Industry Association (SIA), an authority on statistics of
     the semiconductor industry, was also reported on 3 April 2006, to have mentioned that the
     market for personal computers is meeting expectations of 8% to 10% unit growth in 2006.

     Consumer Electronics

     Global unit shipments of consumer electronics like digital still cameras, camera phones,
     PDAs, digital camcorders, portable digital music players gaming consoles, digital video
     recorders and car navigation systems are collectively anticipated to grow at a CAGR of 26.3%
     during the period 2004 to 2008. However, consumer electronics with built-in HDDs are
     projected to expand at a much stronger CAGR of 52.7% for the same period.

     (Source: Frost & Sullivan, Executive Summary: Strategic insights of the HDD market, March 2005)



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     The focus of the Group is more towards the higher end compact cameras and digital SLR
     cameras under the broad spectrum of the consumer electronics, for which the digital SLR
     cameras shipments will experience a 23.8% CAGR over the period 2005 to 2009. The rising
     demand for digital SLRs is mainly fuelled by the introduction of basic SLRs at prices that are
     affordable to a wider customer base.

     (Source: IDC, August 2005)


4.   FUTURE PROSPECTS

     With the advent of perpendicular magnetic recording (“PMR”) technology, Seagate
     Technology (“Seagate”), Hitachi Global Storage Technologies (“Hitachi GST”), Toshiba and
     Fujitsu (global HDD assemblers) have responded with the roll out of new products
     incorporating HDDs of a broad spectrum of form factors, developed with PMR technology.
     Seagate recently announced the introduction of a 750 Giga byte 3.5” HDD which is
     accelerating the data storage capacity gap between HDD and NAND flash memory. Seagate
     has also introduced the 12 Giga byte 1” HDD geared for consumer electronics applications.
     Hitachi GST, meanwhile, has announced the introduction of a 160 Giga byte 2.5” HDD using
     PMR technology. HDDs developed with PMR technology is capable of doubling today’s
     highest data densities achievable using the existing prevalent longitudinal recording
     technology.

     The above developments reinforce the growth prospects of the HDD industry over and above
     the immediate term, which will directly benefit HDD component manufacturers such as the
     Notion Group that have the resources and capabilities to satisfy increasing orders within a
     short timeframe, the technical capabilities and versatility to manufacture HDD components of
     small form factors; as well as a diversified strong customer base of MNCs. The Group is an
     approved vendor to Western Digital, Hitachi GST and SPI Ltd (a subsidiary company of
     Unisteel Ltd and a first tier vendor to Seagate Technology). The Group is also a beneficiary of
     the strong growth experienced by the digital SLR camera market. The growth experienced by
     these industries shall underpin the continuing growth of the Notion Group.

     Notion’s new factory has been fully operational since early May 2006 in line with the
     Group’s business plan. Meanwhile, the Group has been and will continue investing in
     additional CNC machinery to meet the increasing orders for mainly, HDD and camera
     components / parts. With such expansion plans well underway, the Notion Group is
     positioned to capitalise on the rising demand for precision components, largely generated by
     the strong growth rates being experienced by the HDD industry, and the consumer electronics
     and digital SLR camera markets. With equal focus devoted to develop and expand the
     business for both the HDD components and camera parts, the Notion Group would be able to
     reduce reliance on revenue contribution from its HDD segment as traditionally experienced,
     as well as less susceptible to specific business risks inherent to the HDD industry.




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     Meanwhile, the ringgit appreciation and sharp price rise of aluminium are of concern to the
     Notion Group. The continuing strong ringgit may affect both revenue and profitability of the
     Group. However, the net exposure of the Group is about 40% of revenue, helped by the USD
     pricing of its main raw material, aluminium, and nickel-plating services. There is minimal
     pass-on of any cost increases resulting from rising production cost to existing orders. Such
     cost increases are only factored into the pricing of new orders.

     Due to speculation, the aluminium prices on the London Metal Exchange continues to rise
     steeply to above USD3,000 per tonne. However, prices are volatile as seen by the sharp price
     retreat during profit-taking. Due to the volatile and cyclical nature of the commodities and
     metal markets, the Board of Directors of Notion is of the view that the high metal prices trend
     will not be sustained. Nevertheless, the management continues to monitor the fluid situation
     and has taken steps to lock in certain quantities at favourable prices as and when the
     opportunity arises. Notion’s niche is in the volume manufacture of small lightweight precise
     parts, hence there is relatively lower metal content in the Group’s products. This factor would
     alleviate the Group’s burden during such times of rising metal prices.


5.   RESEARCH AND DEVELOPMENT (“R&D”)

     The Notion Group has successfully completed R&D and volume manufactured 2.5” HDD
     components. Currently, the Group supplies more than a million pieces of stainless steel
     spacers per quarter to Western Digital, and the orders are expected to rise by end 2006.

     R&D has also been completed for the smaller form factors, namely, 1.8” and 1.0” form
     factors. However, volume manufacture has yet to commence, mainly because Western Digital
     does not concentrate on 1.8” HDDs, while Hitachi GST’s production of 1.8” HDDs has yet to
     achieve significant volumes. Output of 1.0” HDDs are still in its initial stages as well, hence
     global demand for such smaller form factors does not validate the margins to volume
     manufacture 1.0” HDD components, at this juncture.

     Nevertheless, the size of HDDs trend towards smaller form factors, and the Notion Group is
     poised to ride the growth of small form HDDs in the near future. The market for small form
     HDDs is expected to grow more strongly, particularly since the development of PMR
     technology, which is being applied across the broad spectrum of form factors.

     Meanwhile, the Group maintains continuous R&D activities that concentrate on product
     improvements and development of engineering processes. The Group’s key activities include
     designing improvements to jigs and fixtures, modification of engineering processes, and
     development of appropriate tooling, among others. As an illustration, a fair bit of effort, time
     and costs running into tens of thousands was expended to develop the suitable tooling to
     manufacture the cam barrels for the Nikon account according to the exacting requirements set
     by the multinational companies.




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6.   ANALYSIS OF SHAREHOLDINGS AS AT 11 MAY 2006

     List of ten (10) largest registered shareholders according to the Record of Depositors as at 11
     May 2006.

      No.    Name of Shareholders                                     No. of shares     %

       1     Choo Wing Hong                                           64,977,185        22.16

       2     Choo Wing Onn                                            48,732,873        16.62

       3     Thoo Chow Fah                                            48,732,873        16.62

       4     Lee Tian Yoke                                            21,659,055        7.39

       5     Choo Wing Kin                                            10,829,528        3.69

       6     Choo Wing Leong                                          10,829,528        3.69

       7     Choo Wing Yew                                            10,829,528        3.69

       8     AllianceGroup Nominees (Tempatan) Sdn Bhd    8,800,000                     3.00
             Pheim Asset Management Sdn Bhd for Employees
             Provident Fund

       9     Goh Poey Hong                                            6,340,000         2.16

       10    Tengku Uzir Bin Tengku Ubaidillah                        6,000,000         2.05


7.   FINANCIAL FORECAST

     Financial Year Ended               Consolidated PATMI                     Variance
                                      Forecast /
                                      Projection      Actual *
                                       RM’000         RM’000             RM’000           %

     30 September 2005                  11,490            13,303           1,813        15.78

     Note:
     *       As extracted from the 2005 Annual Report

     The better actual consolidated PATMI compared to the forecast consolidated PATMI for the
     financial year ended 30 September 2005 was attributable to the following:

     (i)     Higher revenue generated (than forecast) from additional new orders of non-hard disk
             drive (HDD) products, comprising mainly, components of digital cameras, video
             cameras and other audio-visual products; and

     (ii)    Improvement in profit margins as a result of better product mix. The Group
             concentrated on the manufacture of HDD components with higher margins, namely,
             spacer rings and disk clamps, while whittling its production volume of low-margin
             spindle motor hubs. The higher profit margin derived from non-HDD components
             also contributed to the better profitability than had been forecasted.


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8.   UTILISATION OF PROCEEDS AS AT THE DATE OF THIS REPORT

     The proceeds from the listing exercise have been utilised as follows:

                                                                          Deviation             Explanations
                                                                                                To be utilised
                                     Proposed         Actual                                     by financial
                                     Utilisation     Utilisation     Amount                    year ending 30
     Purpose                          RM’000          RM’000         RM’000           %          September

     Purchase of new machinery         12,000           12,000           -             -            2006
     / equipment

     Purchase of land and              20,000           20,000           -             -            2006
     construction of new factory

     Working Capital                    8,950           9,134         (184)*        (2.06)          2005

     R&D training and facilities         800              -             800         100.00          2006

     Repayment of bank                  3,000           3,000            -             -            2005
     borrowings

     Listing expenses                   2,500           2,316          184*           7.36          2005


     TOTAL                             47,250           46,450          800           1.69


     Note:
     *         The balance of the unutilised proceeds was utilised for working capital purposes.




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