Company Background. Notion VTec (Notion) is a global supplier of precision-machined components based in Malaysia. It operates under 3 core business segments: (i) hard disk drive (HDD), (ii) electronic manufacturing services (EMS), and (iii) automotive. Notion specialises in high-volume manufacturing of HDD spacers and disk clamps for the enterprise segment, which supports cloud and data centre storage. Additionally, the group produces aluminum hydraulic plungers for electronic braking systems used by major manufacturers, including those catering to electric vehicle customers.

Prospects. (i) Increased orders for the HDD segment due to global inventory shortages, replenishment needs and the recovery of Notion Thailand's HDD machining business. Rising demand for large-capacity HDDs for cloud, enterprise computing and AI machine learning has also led to a resurgence in orders, (ii) The EMS segment's order surge is driven by high demand for aluminum components in high-end appliances. As a major Tier 2 vendor, Notion exports to Tier 1 contract manufacturers both locally and abroad, engaging in new projects involving high-quality metal components, and (iii) In automotive division, the group's plans to expand capacity for aluminum auto parts for braking systems, driven by demand for non-China supply chains, suggest higher sales volumes in FY25.

Financial Performance. In 1HFY24, Notion posted higher revenue of RM205.4mil (+22.2% YoY) with PAT of RM22mil (+2.9x YoY). This was mainly driven by a higher volume of sales in both HDD and EMS segments, increased sales contribution from Notion Thailand's HDD machining business and lower operating & tax expenses.

Valuation. Based on Notion’s 1HFY24 annualised net profit, the stock is trading at an attractive 2024F P/E of 19x, which is lower than Bursa Technology Index’s 31x currently. As a comparison, Dufu Technology Corp, involved in the manufacturing of hard disk drive components, trades at a much higher trailing P/E of 80x.

Technical Analysis. Notion may trend higher after it formed another positive candle and hit a new multi-year high yesterday. As the stock also broke out of a 1-week bullish flag pattern, it may see additional strength in the near term. A bullish bias may emerge above the RM1.55 level with stop-loss set at RM1.38, below the 7 Jun low. Towards the upside, near-term resistance level is seen at RM2.00, followed by RM2.20.

Source: AmInvest Research - 13 Jun 2024