Notion - Sued Over Share Sale Agreement (OSK)

Notion has been served with a writ and statement of claim from the solicitors acting for 3 key personnel (collectively referred to as the plaintiffs) of Swiss Impressive SB for, inter alia, alleged breach by Notion on a share sale agreement dated 10 Dec 2009.

Minimal impact on Notion. The plaintiffs are claiming RM4.5m from Notion but the company has instructed its solicitors to defend it. Judging from the announcement, this suit is unlikely to have a major impact on Notion. The financial contribution from Swiss to Notion was considered insignificant as Notion recorded RM226.8m of revenue and RM37.4m earnings in FY10. On the operation side, Notion had subsequently appointed new management personnel to manage Swiss. Should Notion lose this case, it would have no problem absorbing the RM4.5m claim considering that it has a cash hoard of RM36.9m as at 30 Sept 2010.

But we’re still cautious on Notion. Due to the poor outlook for the HDD business, possibly until 1Q11, and given the uncertainty over its 2.5” HDD business, we remain cautious and stick to our Sell call by pegging its target price at 7x FY11 PER. For FY11, although the management will give more priority to the camera business to sustain its uninterrupted earnings growth streak since FY03, via expanding the Thailand plant from 25,000 sq ft to about 100,000 sq ft by May 2011 to mainly cater for Nikon and new camera customers, we think it is still too early to factor in any meaningful contribution from the Thai plant expansion. The Thailand plant only contributed revenue of about RM1.4m for FY10.