Update On Notion Vtec's Earnings

Notion reported its earnings and as 'suspected' it was ARGGGGGLEEEE!

Here's my updated earnings table for Notion Vtec.

In the posting Is The Downgrade From RHB On Notion Vtec Fair? , I said the following:

• If I have to throw in a dart, I would say perhaps an earnings of 32 million for Notion for its fiscal year 2011. LOL! Yes, that low. :P

With an earnings of just 2.969 earnings... looks like my dart throw could be extremely optimistic at this moment of time!

Anyway, from Notion earnings notes, the company said the following:

• For 3Q of FY2010 the Group recorded revenue of RM60.8 million (2QFY2010 : RM56.7 million) and PAT of RM3.1 million (2QFY2010 : RM12.2 million) and earnings per share of 1.92 sen (2QFY2010 : 8.06 sen). The lower earnings is mainly attributable to initial start up cost of new projects such as R&D, depreciation of machineries, materials and labour whereas the earnings will only come on stream in the following quarters. There were quality issues for one of our HDD components which resulted in rectification and compensation cost. The Group were also affected by the weaker USD and Euro for the quarter under review.
  
  The Group recorded PBT of RM3.9 million as compared to the immediate preceding quarter of RM15.5 million, a decrease of 74.8%.
  
  For the current year todate, total revenue was RM173.9 million and PAT was RM29.3 million compared to the corresponding period of the preceding year of RM118.2 million and RM22.9 million respectively. Yoy the revenue and profit after tax was 47% and 28% higher respectively. The better performance is mainly attributable to higher revenue.
  

The profit guidance.... WAS MOST WORRYING!

• The Group did not issue any profit guarantee and profit forecast during the current financial period to date. However, the Company has in November 2009, provided internal management targets for revenue of between RM220 million to RM240 million and profit after tax of between RM50 million to RM55 million for the financial year ending 30 September 2010, barring unforseen circumstances. The guidance is an internal management target and is not an estimate, forecast or projection. The internal targets has not been reviewed by the external auditors.
  The Board after considerable deliberation wishes to advise that the management target for profit after tax will be revised downwards to between RM33 million and RM35 million for the year ending 30 September 2010 due to reasons set out below. The revised guidance has not been reviewed by the external auditors.

WOW!

Notion is revising its earnings 'guidance' for 2010 to just 33-35 million! (huhu! My dart target for 2011 is 32 million. Huhu! Not too bad after all!)

Currently, 3 quarters earnings is already 29 million.

Which means... next quarter earnings won't be nice also!

ps: Aha... I guess from the earnings notes, it was Notion who guided the analyst with earnings around 50-55 million!

Now let me paste from my earlier posting...

1. RHB's 2011 net earnings forecast for Notion is 56 million. (LOL! Downgraded since then)
2. Kenanga's 2011 net earnings forecast for Notion is 62 million.
3. CIMB's 2011 net earnings forecast for Notion is 80.8 million.
4. 4. And here comes the champion... OSK... OSK's 2011 net earnings forecast for Notion is 95.0 million.

So Notion guidance was already high.. but somehow folks from Kenanga and CMB were even more optimistic than Notion itself!

And OSK? LOL! Those guys are just in a league of their own! LOL! 95 million!

In the posting Stocks Are Flying To The Orbit But Investors Keeps Cashing Out!, I received the following comments:

• The Emperor said...
  What happened to Notion today ? The share price was half dead until about 4.30pm. Trading below its overnight price of RM2.10. At 4.36pm, the share price went ballistic. It moved from RM2.05 at 4pm to RM2.20 at 4.50pm. Half the day's volume was traded at RM2.20 !!! Please explain as I am stupid.

Yup the stock did went ballistic at 4.36!!!

Now that Notion's earnings is soooooo poor... that late show from Notion has a whole new meaning eh?

Yeah.. me also stupid. :D

Anyway on the Edge: Notion VTec 3Q earnings slip to RM2.97m, cautious on 4Q

• KUALA LUMPUR: NOTION VTEC BHD [] posted net profit of RM2.97m in its third quarter ended June 30, 2010, down sharply from the RM11.1 million a year ago as earnings were impacted by the initial start-up cost of new projects and it is cautious about the fourth quarter
  
  It said on Thursday, Aug 5 revenue for 3Q rose 36% to RM60.8 million from RM44.71 million a year ago but expects the 4Q revenue to be lower due to lower orders from the hard disk drive (HDD) components sector. Earnings per share shrank to 1.92 sen versus 7.88 sen.
  
  "The lower earnings is mainly attributable to initial start up cost of new projects such as R&D, depreciation of machinery, materials and labour whereas the earnings will only come on stream in the following quarters," it said.
  
  Notion VTec said there were quality issues for one of its HDD components which resulted in rectification and compensation cost. The group were also affected by the weaker US dollar and euro for the quarter under review.
  
  "The group recorded pre-tax profit of RM3.9 million as compared to the immediate preceding quarter of RM15.5 million, a decrease of 74.8%," it said.

Now some of Notion's minority shareholders are not going to be happy. Apparently they were told of a bright future just last month during the company's EGM! Yes, in exactly one month, suddenly the managment is telling that earnings is going to be poor!

How can? How is this possible?

Now on the EdgeMalaysia, on the 7th July, they published the following article: Notion Vtec to kickstart ops at RM150m HDD plant

• Notion Vtec to kickstart ops at RM150m HDD plant
  Written by Aishah Mustaphah
  Wednesday, 07 July 2010 11:33
  
  KUALA LUMPUR: Notion Vtec Bhd is poised to begin the first-phase operations at its largest hard disk drive (HDD) manufacturing plant in Klang by early next month, the entire development of which will cost RM150 million over the next two years.
  
  Under a three-phase development, the new 200,000-sq ft facility will eventually have a total production capacity of 84 million 2.5-inch HDD baseplates annually, a significant boost from the current four million baseplates.
  
  The rollout of the first phase entails production of 24 million pieces a year, with Samsung as a major client.
  
  The first phase will be partly funded through the company’s latest proposed private placement of new shares of up to 10% of the company to institutional investors.
  
  The placement proceeds are expected to total RM45.9 million and will be used to buy new equipment and machinery costing up to RM78 million and renovation of RM2 million. The remaining capital expenditure for the first phase and for the second and third phases will be generated from internal funds and bank borrowings.
  
  Last January, Notion Vtec raised RM33.78 million from placing out a 10% stake to its client, Nikon Corporation, towards expanding its single lens reflex (SLR) camera parts manufacturing plant in Thailand.
  
  Speaking after the group’s EGM here yesterday, Notion Vtec’s executive chairman Thoo Chow Fah said its current placement would not go towards another client. “We are looking at a few institutional investors to come in,” he said.
  
  For its second quarter ended March 31, 2010 (2QFY10), the group’s revenue growth was flat at RM56.7 million versus RM56.3 million in the preceding quarter. Revenue contributions are currently derived from HDD (48%), SLR camera (36%), and industrial/automotive (16%).
  
  2QFY10 net profit fell to RM12.2 million from RM14 million a year earlier due to the initial start-up costs of new projects in Thailand and the baseplate project, earnings from which would only come onstream in the following quarters.
  
  For the six months to March 31, 2010, Notion Vtec’s revenue totalled RM113 million and net profit was at RM26.2 million. Year-on-year, revenue and net profit were 54% and 122% higher, respectively. The strong growth is attributed to recovery in all its business segments.
  
  As at March 31, 2010, its long-term borrowings stood at RM52.28 million while short-term borrowings came up to RM25.9 million, while shareholders’ equity amounted to RM224.12 million, giving a gearing of 0.35 times. Cash and cash equivalents stood at RM56.85 million.
  
  For this year’s outlook, Thoo expects strong growth from the SLR camera segment, after last year’s economic downturn.
  
  “I see Nikon’s growth as very strong, especially coming to the end of this year,” he said, adding that the production of the new facility will have much of a positive impact on its bottom line this year, but that would be seen next year instead.
  
  As solid state drives (SSD) are making headway towards replacing some usage of HDD, Thoo believed that HDD would have a shelf life within the next 10 years.
  
  “As we go along, we are always aware of disruptive technologies. As for SSD, I believe there will be a complementing space for both of them. HDD is still one of the cheapest and reliable sources of storage for another 10 to 15 years. We are also moving into the 2.5” HDD as well as 3.5” HDD,” said Thoo.
  
  The 2.5” HDD is typically used for mobile devices such as laptops while the 3.5” HDD is pervasive in personal computers.
  
  Thoo said the group was constantly looking at cost-cutting measures. He said it was looking at recycling scrap aluminium that could serve as raw materials for its HDD baseplates. “We have found a site for it and we are now waiting for approval,” said Thoo.
  
  This article appeared in The Edge Financial Daily, July 7, 2010.