Notion VTec downgraded after factory catches fire
But Notion VTec says it has adequate insurance coverage
PETALING JAYA: Notion VTec Bhd’s stock has been downgraded after the precision parts manufacturer announced that a part of its factory in Klang was razed in a fire that broke out on Friday.
The company’s stock was suspended on Friday evening with the manufacturer estimating the fire caused damages worth between RM150mil and RM200mil.
However, the company also highlighted that it has adequate insurance coverage of RM350mil for property damage and RM217mil for business interruption of up to 18 months.
Notion’s stock yesterday surged by 5% to 73.5 sen despite the downgrade by Kenanga Research, partly because the cut to the new target price was higher than the stock price before news of the fire broke out.
Kenanga Research noted that the full financial and operational impact of the incident has yet to be ascertained.
“While we understand from the company’s management that the assets and the potential earnings losses could be fully covered by insurance coverage, we prefer to stick on the conservative side for now, which led us to cut financial year 2018’s estimated earnings by 54%,” the research house said. “With a more conservative 0.65 times FY18E price to book valuation being ascribed, we derive our target price of 73 sen from RM1.55 previously, which implies FY18E PER of 15.5 times,” it said.
The research house downgraded the stock’s rating to “market perform.”
Notion said that the source of the fire was apparently from a ventilation fan and that it had spread to the main plant’s roofing behind the main office.
The company said the fire had affected more than 552 computer numeric control (CNC) machines and work-in-progress (WIP) goods and the quality control (QC) building, but not the rear building and the surface treatment plants, which are still good and operational.
“The immediate effects of this outage in this affected plant is about 50% to 60% of the company’s sales revenue but with the fast recovery plan, Notion will have restored 75% of the outage progressively within five months and the balance within another three months,” the company said.
“But of course the full restoration of structure and Certificate of Fitness may take up to a year,” it said.
Notion VTec said the building structure will need to be removed and rebuilt, including the air supply and electrical wiring and ancillary equipment.
It also announced that it was ordering and sourcing for emergency replacement CNCs and quality control equipment.
Notion VTec estimated the affected segments are the camera, hard disk drive top clamps and automotive parts but the com- pany will recommence production in
Factory 3.
“Notion has adequate financial resources to quickly make even cash payments to secure any equipment and CNC or materi- als.
Meanwhile, Notion has laid out a fast recovery plan to ensure “its customers’ orders are fulfilled and their concerns allayed,” the company said.