Notion VTec expects to be profitable in FY16

PETALING JAYA: Precision parts manufacturer Notion VTec Bhd expects to return to the black for the financial year ending Sept 30, 2016 (FY16) after two consecutive years of losses, banking on growth in the automotive segment.
For FY15, the company registered a narrowed net loss of RM13.02 million compared with RM27.74 million a year ago. However, its financials were still affected by lower sales as well as provisions for mark to market position on its US dollar foreign currency hedging contracts.
This explains why the company was not able to register better results despite a stronger US dollar, which has benefited exporters. The unfavourable hedge at a lower exchange rate will only come to an end in September this year.
"Going forward it should be very positive. Definitely it will be better than the last few years," Notion chairman Thoo Chow Fah (pix) told SunBiz in a recent interview.
Latest first-quarter results ended Dec 31, 2015 show that the company reported a net profit of RM3.11 million against a net loss of RM5.25 million in the previous corresponding period.
Notion had been actively securing new businesses in recent years, including a plan to venture into sale of smartphones with the brand "Trendi" last May. Unfortunately, it was called off due to the highly competitive environment.
Prior to that, it had in October 2013 diversified into the silver mining business via the acquisition of a 19.9% stake in Australia-listed Alcyone Resources Ltd for RM14.7 million.
However, the investment did not pay off as Alcyone's financials deteriorated less than a year after the investment was made and it went under receivership.
The exit from the mining business resulted in Notion making a total impairment of about RM15 million and even dragged the company into its first full-year loss since the company's listing in 2005.
For 2016, Thoo said Notion's focus will be more on consolidating its businesses instead of pursuing aggressive expansion and diversification.
"We've gone through a lot of turbulent times, starting with tsunami in Japan, floods in Thailand and fire at our Klang factory, and last year was the forex issue. I think we need a period of stability and we're now stable, showing some good results.
"Let's assure the investors that we're okay. Once we're there, then we can take on more risks," he added.
Notion is well prepared for any new venture with its net cash position. Its long-term and short-term borrowings stood at RM32.26 million versus RM43.74 million in cash as at end-December 2015.
Operationally, Thoo foresees the company's growth in 2016 to be mainly driven by its automotive business, which recorded a 46% growth in Q4 FY15. The other two segments – camera and automotive grew 27% and 28% respectively.
"The automotive business is still strong, the camera segment looks steady and the HDD (hard disk drive) business is difficult to predict, but it should be steady, (or slightly) lower," he said.
While acknowledging that the market is gradually moving towards solid state drive (SSD) from HDD, Thoo said there is still demand in the HDD market.
"As the market is moving from HDD to SSD, there is always underlying long-term trend of moving out from HDD, but I don't know when. Still, bulk purchases are in favour of HDD although prices of SSD have come down," he explained.
On the proposed increase in foreign worker levy (which has since been frozen), Thoo believes a hike will weigh on Notion's bottom line. Of the total 2,100 workers it currently has, about 86% or 1,800 are foreign workers. "Our current business model requires a lot of capex (capital expenditure) and labour."
Thoo explained that this has made Notion gradually turn more to automation even though it involves substantial cost.
On his recent disposal of shares of Notion in the stock exchange Thoo stressed that it was purely to cash in on his investment, dispelling no-confidence claims. "At some later point, I'll move back in," he said.
Filings with the stock exchange show that Thoo still owns a 4.43% direct and a 0.002% indirect stake in Notion. This compares with 7.67% and 1.82% respectively in September, 2014.