KUALA LUMPUR, July 30 (Bernama) -- Bursa Malaysia's key index closed at an intraday high today, supported by continued buying interest even as renewed geopolitical tensions and a weaker overnight lead from Wall Street following the US Federal Reserve's (Fed) decision to stand pat on interest rates weighed on broader sentiment. The Fed has decided to hold rates steady for the fifth consecutive meeting, with the Federal Funds Rate unchanged between 3.50 per cent and 3.75 per cent. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 4.84 points to 1,720.40 from yesterday’s close of 1,715.56. The benchmark index, which opened 1.14 points lower at 1,714.42, hit its lowest level of 1,710.69 in early trade before gaining momentum for the rest of the day. However, the broader market was negative with losers outpacing gainers 581 to 411, while 612 counters were unchanged, 1,173 untraded, and 87 suspended. Turnover declined to 2.49 billion units valued at RM2.25 billion from ...
Hong Leong Investment Bank (HLIB) has reduced its target price (TP) for Notion VTec Bhd to RM2.74 from RM3.28, despite the company reporting a decent earnings performance for the third quarter ended June 30, 2024 (3QFY2024). The downgrade is mainly attributed to the anticipated negative impact of a stronger ringgit against the US dollar on Notion VTec's future earnings.
Key Points:
Target Price Adjustment:
- HLIB maintains a 'buy' recommendation for Notion VTec but has lowered the price-earnings ratio valuation from 30 times to 25 times, reflecting concerns over subdued sentiment surrounding export-oriented companies due to the stronger ringgit.
- Notion VTec’s stock has already plunged 57% from its recent peak.
Foreign Currency Exposure:
- The company has significant exposure to foreign currency risks, with 50% of its receivables in US dollars and 20% in euros. Approximately 90% of its sales are in these currencies.
- The appreciation of the ringgit is expected to result in foreign exchange losses on receivables and lower gross profit margins due to reduced earnings value in ringgit terms.
Broader Market Sentiment:
- Additional pressure on Notion VTec's share price stems from broader market dynamics, including the imposition of cash upfront requirements by brokers for purchasing shares and a general shift in the investment community towards value plays, particularly in the financial services sector.
Inventory Concerns:
- The company's earnings are also weighed down by its aluminium inventory, which was purchased during a period of a stronger US dollar.
Mitigation Measures:
- Notion VTec plans to mitigate the impact by using forward contracts and potentially raising average selling prices of its products.
Operational Growth and Strategy:
Hard Disk Drive (HDD) Segment:
- Notion VTec’s HDD segment has seen a 39% year-to-date growth, with its largest customer increasing order allocation from under 50% to 70-80% due to competitor issues. The company plans to expand its production capacity from 17 million to 20 million spacers per month soon and aims to double this capacity to 40 million by 2HFY2025.
- The company is also exploring new product lines, such as glass and stainless steel spacers.
Electronic Management Services Segment:
- This segment grew by 81% in 9MFY2024, driven by increased orders for tension bars. Notion VTec is expanding its production capacity to 100,000-200,000 pieces weekly.
Automotive Segment:
- Achieved 16% growth in 9MFY2024, with expectations for further increases as its largest customer plans to reduce reliance on China.
Outlook:
Despite facing challenges due to the stronger ringgit, Notion VTec remains well-positioned to benefit from the growing adoption of AI, advancements in disk storage capacity, and global manufacturing diversification. The impact of currency fluctuations on its earnings will likely be fully reflected in the next quarter.
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