Kenanga maintains underperform on Notion VTec as recovery continues

KUALA LUMPUR: Notion VTEC Bhd's 9M18 core net loss of RM22.1mil beat expectations due to lower-than-expected operating expense and a much lower ETR.

"Note that the 9M18 CNL has been adjusted for (i) the plant and equipment as well as inventories write-off amounting to RM50.0m as well as (ii) the insurance interim payments of RM80m (four tranches)," said Kenanga Research.

For the period, revenue dropped 9% year-on-year on lower sales orders following the fire incident on Oct 20, 2017. at Notion's main Klang factory.

"As production capacity was down by >1/3 while the overhead cost cannot be charged out effectively, CNL of RM22.1m was recorded, all on top of the weaker USD/MYR as well as the higher aluminum prices during the period," said the research house.

The group has provided for a write-off totalling about RM50mil while putting forward a partial material loss claims of more than RM170mil.

Notion has claimed back about RM80mil in total to date. According to Kenanga, sales volume is expected to be lower than in the previous year as it has lost one account in the camera business due to the fire incident with much reduced orders from Nikon.

The group is focusing on increasing its non-core business in the precision parts industry to offset the impact. 

"We believe the gestation period could be longer than the previous incident (which was 6 months) considering the more severe impact this round. All in, for our base case, we only
assume full recovery earliest by 1Q19," said the research house.

It maintained underperform on the counter with a target price of 60 sen.