Notion Vtec development for 2010

Found this interesting article about Notion development for 2010. I have hightlight some point which would be the potential earning catalyst for Notion.


Camera giant Nikon Corp’s buy-in into local precision parts maker Notion VTec Bhd is more than just a successful fundraising exercise. More importantly for Notion, Nikon’s purchase is a strong endorsement by a world-class company, and also secures Notion’s growth prospects for the long-term.

“If you’re just looking for money, you can place it out to just anyone,” notes an industry observer. “The Nikon placement is a feather in Notion’s cap.”

The exercise, which saw Nikon take up 13.84 million shares representing 10% of all outstanding shares prior to the issue of new stock, was priced at RM2.44 per share and raised RM33.78 million. According to Bloomberg data, Nikon now holds an 8.95% stake in Notion based on an enlarged share capital of 156.1 million shares.

The proceeds from the placement will be used to fund the development of Notion’s RM40 million production plant in Thailand. The plant will initially have a total floor space of 25,000 sq ft, although there are plans underway to expand to 200,000 sq ft.

The decision to go ahead with the plant in Thailand was strategic, Notion’s executive chairman Thoo Chow Fah tells The Edge in an interview at the company’s headquarters in Klang. The new factory is expected to mainly cater to Nikon’s factory in Thailand in the initial stages, although it will broaden its horizons to cater to other clients after the expansion is done.

The Thai factory will not cater exclusively to the camera segment, but will also manufacture components from Notion’s other core businesses, which include the hard disk drive (HDD) parts and automobile components.

Notion has so far escaped any serious competition from countries with cheaper manufacturing costs such as China because it manufactures parts that require high levels of precision, says an industry source. Moreover, manufacturers are wary about entering into China because the protection of intellectual property (IP) there can be quite poor, he says.

“The Japanese are not comfortable about going into China because of IP security concerns,” he adds.

Thoo says the tie-up with Nikon is a positive for both companies, and will see an increase in the number of orders from Nikon as well as an increase in the partnership that may see Notion diversify their production capacities to add further value to their product.

“I think the tie-up is positive. It will most likely give us more business. I would think that in the immediate term, any impact would be difficult to see because our new plant in Thailand is small at only 25,000 sq ft... but by the middle of this year or into the next financial year, it should impact our camera business by 30% to 50%.

“But they (Nikon) are also securing a very good supplier of components. Some years back, they had a bad experience where one of the component suppliers was pinched, so the tie-up works both ways,” he says.

Thoo is hopeful that Nikon will share its technology with Notion, which would allow Notion to develop other camera-related products. Notion is primarily involved in developing cam barrels for single-lens reflex (SLR) cameras as well as related parts such as mounts and internal components.

The tie-up, he adds, may mean more significant value-adding projects for Notion, which includes the assembly and the production of multi-component parts. This means that the tie-up will also help Notion move up the value chain.

It has been learnt that Nikon is considering outsourcing its machining line from its factory in Sendai to Notion’s factory in Thailand once the latter is up and running.

As for the company’s business model, Thoo says Notion will be in expansionary mode over the next two years. He indicates that capital expenditure (capex) for 2010 will come up to RM70 million to RM40 million for the Thai plant and RM30 million for domestic expansion. Thoo says he does not expect that Notion will have to go to its shareholders for funds, as it is growing at a comfortable pace.

Thoo says that although the camera business is growing rapidly, Notion’s HDD business remains very viable, and demand for parts is outstripping supply. Notion has recently started producing base plates for 2.5in HDDs, which is a new business for the company. Presently, Notion is only supplying Samsung, but Thoo is looking at other clients as well.

“The main project here is the 2.5in base plate for Samsung, which we already supply, but it’s still in the early days. We are producing less than 100,000 pieces per month. By the middle of this year, we should be supplying up to a million pieces but it’s a new business for us,” he says.
The RM30 million domestic capex will mainly be used to purchase equipment for this segment of Notion’s business. Thoo adds that Notion is considering going into China if volume from this business picks up.

“We will grow this business and are planning doubling it every year, because the demand is outstripping supply. We are looking to supply Digital, Hitachi, Alphana once we have got over the learning curve,” he says.

“We may also have to look at a China plant. Samsung’s plant is in Southern China, so if we deliver more, it’s going to be difficult for us to supply from here. But if the volumes are substantially higher, we may have to start looking in 2011,” he says.

Notion, which was transferred to Bursa Malaysia’s Main Board (now Main Market) last August, has consistently reported profits since the transition, bucking the trend last year when many Malaysian manufacturers dipped into the red owing to the financial crisis.

It is also a favourite with analysts, with all four research houses covering the company holding a “buy” call on the counter. Risks to the company’s prospects include a sudden downturn in the HDD industry, and the further weakening of the US dollar against the ringgit.


Sources : http://www.bizedge.com/features/159720-corporate-nikon-tie-up-an-endorsement-for-notion.html
This article appeared in Corporate page, The Edge Malaysia, Issue 790, Jan 25-31, 2010