PETALING JAYA: The ringgit’s strength is poised to weigh heavily on Notion VTEC Bhd
’s financials resulting in substantial foreign-exchange (forex) losses in the coming quarter.
This, however, might not reflect the true picture of the supplier of precision-machined component’s robust operations.
Nevertheless, it is enough for Hong Leong Investment Bank (HLIB) Research to trim its target price on the stock to RM2.74 and cut the assigned price-to-earnings ratio to 25 times from 30 times to reflect the subdued sentiment surrounding export-oriented companies in view of the less favourable forex.
The research house in a note to clients said Notion’s share price performance had experienced a significant 57% correction from a 52-week high of RM2.45 to RM1.05.
This decline occurred despite the strong third quarter of financial year 2024 (3Q24) results and can be attributed to several factors such as the sharp appreciation of the ringgit, which is expected to dent the group’s subsequent earnings and the imposition of cash upfront requirements by brokers that dampened sentiment.
However, among the factors mentioned, the most prominent reason for investors shying away from Notion appears to be the potential impact of exchange rate fluctuations, said HLIB Research.
It noted that approximately 50% of Notion’s receivables are in US dollars and 20% in the euro, while 90% of the group’s sales are also denominated in these currencies.
HLIB Research said earnings will further be weighed by the company’s old aluminum stock that was bought during the strong US dollar period.
“Following this quarter, the stronger ringgit is expected to be fully reflected in 1Q25’s performance. Management is in the midst of exploring ways to mitigate the effect through forward contracts and may adjust upward its products’ average selling price.”
That said, from a business outlook perspective, the research house remains optimistic about the group’s operations.
