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Wednesday, July 16, 2014

Notion VTec close to securing deals (Edge)

Precision parts maker Notion VTec Bhd is close to clinching two to three deals from Japanese and South Korean firms to manufacture smartphone components, which could bring in RM40 million to RM50 million in annual revenue, said its executive chairman Thoo Chow Fah.

Describing the potential contribution as “significant”, Thoo said if successful, the deals would start contributing to the group’s bottom line from the financial year ending Sept 30, 2015 (FY15)....

Notion VTec has been hard hit by the continued weakness in both its HDD and camera segments, and the outlook for both markets remains challenging. As such, the move to manufacture smartphone components would help reverse its fortunes.

According to Thoo, mobile phone production is a “big number” with a billion pieces produced per year.

He said if the deals go through, regardless of which firm it ties up with, the number of manufacturing units would be huge.

“The manufacturing of smartphone hardware components will involve capital expenditure, perhaps initially in the multiples of RM10 million,” he said.

Depending on the growth of potential contracts, Thoo said the group would initially utilise its existing operations for the proposed smartphone hardware segment.

“We have to adjust, reinvent and reorganise ourselves to allocate resources accordingly.”

For its first-half financial year ended March 31, 2014, the group reported a smaller net loss of RM17.38 million on continued weakness in both its HDD and camera segments. This compared with a net loss of RM20.34 million a year ago....

For FY13 ended Sept 30, Notion VTec’s net profit halved to RM21.82 million compared with RM49.26 million in the previous year.

Revenue shrank 27% to RM224.19 million from RM308.83 million in FY12.

While he deemed the HDD segment as generally quite stable, he noted that the laptop and personal computer segments of the HDD market were affected largely due to the increasing demand for smartphones and tablet devices.

To address the erosion, he said: “We are now focusing on the enterprise segment like all other HDD players as fewer people are buying laptops.”

Thoo said the enterprise segment has a compounded annual growth rate of 40%.

“There is huge growth. The HDD players are focusing less on the PC segment, but more on the enterprise segment. If we were to follow that shift in demand, we probably won’t be able to meet all that demand.

“So, there has been a shift of manufacturing machinery to the enterprise segment from camera parts manufacturing. It is a temporary shifting of some capacity over to the HDD side,” he added.

According to Thoo, Notion VTec’s SLR camera parts sales have plunged by as much as 40% of its usual sales revenue...

Asked if Notion VTec would diversify into solid state drive manufacturing to ride on the recovering semiconductor industry, Thoo said it would not do so as the group is not a chip-based company.

On the oil and gas segment that delivers subsea equipment, Thoo said this unit is in the midst of a turnaround, which currently contributes less than 5% to Notion VTec’s net profit and revenue.

“We are observing the market. If we see it to be robust and demand is good, we can always scale it up,” he said.

On its 20%-owned associate Alcyone Resources Ltd, Thoo said Notion VTec will keep its stake in the Australia-listed firm.

“But we are not going to invest further,” he said, adding that it is a “passive” investment.

Shares in Notion VTec closed 0.5 sen or 0.85% higher at 59 sen on Monday, giving it a market capitalisation of RM158.3 million. Year-to-date, Notion Vtec’s share price has fallen 15.11%.

This article first appeared in The Edge Financial Daily, on July 16, 2014.

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