Thursday, 5 January 2012

Can Notion Avoid Loss?

In its presentation for 2011Q4 financial results in Nov 2011, Notion warns that it may register a loss-making quarter in 2012Q1 (Oct-Dec 2011). This includes RM3million loss for damaged finished products, RM2million loss for inadequate insurance cover on machinery, and expected 45% drop in revenue for 2012Q1 due to the Thai flood.

Global major HDD manufacturers are badly hit by the flood. Most of them have factories in Thailand which produces about 60% of HDD in the world. Notion's factory in Thailand was closed down because of the flood. However, the plant mainly produce camera parts and it makes up only 3% of Notion's revenue. Notion mentioned in Nov that the forecast of reduction in revenue is mainly due to reduction in orders by its main HDD customers such as Western Digital and Seagate, whose production have ceased due to the flood.

      Flood in Ayutthaya, Thailand

Reduction in order by WD & Seagate should affect JCY as well. Though JCY's factory in Thailand is not affected by the flood, but if there is no order from customers, it is still useless even if the factory is in good shape. However, it turns out to be the other way round.

Since mid October, JCY share price starts its rally after reports saying that it will benefit from the Thai flood.  Besides the fact that JCY's Thai factory is not affected, the price of HDD has increased by 50-100% due to shortage of supply. Some source mentions that JCY receives a lot more orders esp from Western Digital. JCY's share price has gained almost 200% since Oct 2011.

Western Digital is also Notion's major customer. Why no one mention about Notion? Western Digital does not order from Notion because of logistic issue?

Yesterday, (4th Jan 2012), JCY releases its profit guidance for its 2012Q1 (Oct-Dec 2011). It expects its net profit to surge 1900% YoY to the region of RM120million, which will be 50% more than its previous record quarterly net profit. The reasons given are increase in average selling price, stronger USD vs MYR, effective product mix and efficient cost management.

Notion's discouraging presentation was back in November 2011. Has anything changed their forecast in December 2011? As in JCY's case, Notion should be able to benefit from increased selling price of HDD and stronger USD, and perhaps increased order recently???

      Notion in Klang

In the previous quarter, Notion has successfully acquired 3 new customers, at least to partly compensate the anticipated lower orders by existing customers. Its facility in Thai is expected to restart by Feb 2012. However, its camera parts main customer Nikon is also affected by the flood.

It's hard to predict how Notion will perform in the period of Oct-Dec 2011. Will it plunged into red because of those one-off losses, or will the damage be offset by higher selling price and demand for HDD?

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