Notion VTec primed for a good year ahead
KUCHING: Notion VTec Bhd (Notion VTec), a manufacturer of precision machinery parts is primed for a good year ahead in fiscal year 2017 (FY17) supported by better products portfolio and enhanced operational efficiency.
Following a meeting with Notion VTec’s management, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) came away reaffirmed on their positive outlook on the company.
The research arm reckons that the company’s improving products portfolio will anchor growth in the near and medium term, especially as its product mix ratio is improving as the group is receiving more stack-up orders from the Automotive electronic brake system (EBS) components from its new customers.
“In terms of volume, it will be over 30 per cent more which will counterbalance the demand fluctuations for interchangeable Lens Type products in its Camera segment,” explained the research arm.
Management is also pushing to facilitate this counterbalance further by aiming to change up its current product mix ratio of HDD/ Camera/Auto parts at 49:21:30, to a more ideal ratio of 35:15:35 instead by slowly freeing up its capacity in the Camera segment to cater for better margins and higher resiliency products.
The purpose of this strategy is to create better and more diverse products portfolio that will enable management to better manage the cyclical nature of its earnings and products cycle.
Additionally, the group’s products portfolio is set to diversify even more as they have ventured into a new industrial segment – the manufacturing of parts for household and sport items. However, the Kenanga research has commented that no meaningful contribution from this segment will be seen until FY18.
Looking towards enhanced operation efficiency, for its new Johor Bahru operations, Notion VTec’s management has shared that 50 new Computer Numeric Control (CNC) machines will be fully installed by April.
The machines will increase overall operational efficiency in terms of processes, machine cycle times, and as well as cost efficiencies.
“In a blue- sky scenario, management believes that savings of RM2.4 million per annum could be achieved, with less than a 100 workers alongside with 3 times faster lead time for processes,” reported the research arm.
All in, the Capital Expenditure ( capex) for FY17 is estimated to be around RM30 million. However, this will not be an issue for the group as it has already reported a strong net cash position of RM21.7 million as of end-Nov, 2016.
Moreover, the group will also be starting FY17 with a clean slate as the adverse currency hedging which has previously plagued the company’s operation profits has already expired.
With management indicating that there would be no likelihood of them ever entering such a hedging again, investor confidence has renewed further following rationalisation exercises performed by management towards its investors regarding some of its loss-making investment.
Furthermore, management has attempted to cement investor confidence further by rewarding shareholders with higher dividend pay- outs in FY17, following its earnings recovery and improving balance sheet.
“With our FY17 earnings estimates and with healthy free cash flow projection of RM15.8 million, we believe that the group could offer at least 3.0 sen, translating into a dividend yield of 4.8 per cent, which would appeal to investors who are seeking refuge in defensiveness,” shared research arm.