HLIB Research believes the near-term earnings outlook remains uncertain.
PETALING JAYA: Notion VTEC Bhd
’s weak performance is expected to persist in the upcoming quarters, in line with seasonally lower sales in the technology sector, says Hong Leong Investment Bank (HLIB) Research
Supporting this view is Western Digital and Seagate, which both recently guided for slower hard disk drive shipments during the period due to weaker demand from cloud customers, said the research house in a note to clients yesterday.
Notion VTec posted a core profit after tax and minority interests of RM6.9mil in its latest first quarter of financial year 2025 (1Q25) results, down 60.5% quarter-on-quarter and fell 11.6% year-on-year.
The results missed both HLIB Research and consensus forecasts, accounting for just 11% of full-year projections.
“This under-performance was primarily driven by weaker-than-expected sales,” the research house noted.
In the electronics manufacturing service segment, HLIB Research anticipates some initial cost pressure as the group invests in expanding its capacity for the motor casing business.
“Additionally, margins are expected to be impacted by the potential electricity price hike in the second half of 2025 and a stronger ringgit, which we project to average at RM4.35 to the dollar this year,” it added.
In any case, if the motor casing business is successful in its ramp up to on board new customers and more business flows from existing auto clients, these could provide some reprieve to the bottom line, said HLIB Research.
Given Notion VTec’s earnings miss, the research house said it has cut its financial year 2025 (FY25), FY26 and FY27 earnings by 34%, 31% and 25% respectively.
“Following the earnings adjustments, we have lowered our price-to-earnings multiplier to 13 times for FY25 (from 25 times) to reflect the disappointment in earnings outlook and guidance.” it added. As a result, the stock’s target price is revised to 94 sen from RM2.98, based on FY25 fully diluted earnings.
“We believe the near-term earnings outlook remains uncertain, with margins likely to be compressed by a stronger ringgit and rising costs, including electricity and labour,” HLIB Research noted.
Notion VTec shares closed six sen lower at 87 sen yesterday.
