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♦ Construction work on its new 150k sq ft plant is set to commence production by Sep-10. Note that management expects capex of around RM80m to ramp up the base plate capacity to 1m/month, 5m/month, and 7m/month by FY10-12 respectively from 350-400k/month (currently) vs. 100k/month in Jan-10.
♦ Also, the company expects stronger volume loading in 2H2010 from WD on the back of strong demand for HDD components. Recall that WD overtook Seagate as the No. 1 HDD vendor in 1Q10. WD now expects to increase its total HDD shipments by more than 20%. While currently capacities for these components are 800-900k/month, management is expecting to increase capacity to 1.5-2.0m/month by end-2010.
♦ In the anticipation of higher costs this year stemming from higher start-up costs and product testing, we have trimmed our FY10 net profit forecast by 4.3% to RM53.6m. However, given stronger volume loading as well as lower cost stemming from tight cost control and higher utilisation rate, we have tweaked upwards our FY11-12 net profit by 0.8% respectively.
♦ Separately, assuming completion of the proposed 10% placement and rights issue of free warrants, we estimate FY11 fully-diluted EPS of 38.5 sen, i.e. a dilution of 17.7% from our current forecast, while our fair value would fall to RM3.85. Nevertheless, this would still imply 41% upside from current levels.
♦ After revision in earnings, our fair value is raised to RM4.68 from RM4.64. Maintain Outperform.
RHB Equity 360° - 20 May 2010 (Notion Vtec, Kencana, Media Prima, Amway; Technical: IOI, FBM KLCI)
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