This article first appeared in The Edge Financial Daily on March 11, 2019
KLANG: Precision parts manufacturer Notion VTec Bhd expects its main manufacturing plant in Klang — which was razed last year — to be fully restored in June and restart operations by July, which will bolster the group’s growth going forward.
The group’s executive chairman Thoo Chow Fah told The Edge Financial Daily when met last week that the plant is now in the final leg of its restoration, which is estimated to cost between RM120 million and RM130 million in total.
Although the plant is yet to be operational, Thoo is confident the group will remain profitable in its financial year 2019 (FY19) ending Sept 30, 2019, driven mainly by robust growth in the electronic braking system (EBS) market, and improving sales of hard disk drives (HDDs) and other engineered products, like the interchangeable lenses for single-lens reflex cameras.
The group is also expecting to get its insurance claim for loss arising from the fire’s interruption to its business in the next two to three months, which Thoo thinks will amount to “tens of millions” and provide a boost to the group’s profitability.
As for the damage to the plant, the group has previously received RM159.37 million in total from AXA Affin General Insurance Bhd. In October 2017, Notion VTec indicated a preliminary, estimated loss of between RM150 million and RM200 million from the incident.
Of the RM159.37 million payout, it received RM80 million in FY18 — which boosted its FY18 net profit to RM44.73 million from RM12.96 million in FY17. The balance RM79.37 million was paid in the first quarter of FY19 (1QFY19) ended Dec 31, 2018.
Subsequently, the group reported a narrowing in net loss to RM2.17 million for 1QFY19 from RM28.91 million in the year-ago quarter. Stronger revenue — up 9% to RM63.34 million from RM58.29 million on improved contributions from HDDs, automotive and engineered products — amid lower operating costs also helped pare down its loss.
Thoo also assured that there would be no more impairment loss to be recognised from the fire incident, after the RM21.47 million it booked in FY18.
Rising demand for EBS
Notion VTec produces components for EBS under its automotive segment, which Thoo describes as a “rather predictable and stable” business.
With rising demand for EBS, the group is also expanding capacity for the production of EBS components, which is incorporated as part of its plant restoration. This should boost capacity to up to 28 million units a year from 20 million at present. He expects segmental revenue to jump to 50% of total group revenue. In FY18, the segment contributed 32% or RM20.32 million to the group’s RM256.15 million revenue.
“We are the major player in the car industry ... we have about market share of 15%-20% of the car braking system, globally,” Thoo said.
Notion VTec supplies EBS components to clients like ZF TRW — a subsidiary of ZF Friedrichshafen AG — and Continental AG, both German-listed companies, as well as Diamet Corp, a subsidiary of Japan’s Mitsubishi Materials Corp.
Besides automotive, it has two other business segments: the design and high-precision metal manufacturing of HDDs, which contributed RM31.75 million or 50% to the group’s FY18 revenue, and engineered products, which made up the remainder RM11.26 million or 18%.
On the HDD front, Thoo expects margin improvement from a move to either stainless steel or titanium material for the platters of HDDs meant for enterprise use, which require a capacity of 20TB and above. HDDs with a capacity of 10TB to 15TB use aluminium for their platters.
The change of material is also a way to increase the competitive edge of HDDs against solid-state drives, Thoo said, as the new material allows HDDs to add capacity without expanding its size.
On another note, Thoo said the new manufacturing plant will have two floors, instead of a single-floor design, which will double its built-up space to 240,000 sq ft from 120,000 sq ft previously, and be used for the expansion of its automotive and engineering products division.
The group is also looking at further automating its plant to lessen dependency on labour, with a five-year plan laid out to achieve “as much automation as possible”.
Notion VTec has also invested in its own aluminium extrusion technology to save raw material costs and for quality control for its high production line products. For this, it has obtained a grant from the Malaysian Investment Development Authority for a sum of RM5.7 million, about half of the group’s total investment of RM11 million, in the project.
Notion VTec shares slid one sen or 1.71% to settle at 57.5 sen last Friday, giving it a market capitalisation of RM190.34 million. In the past 12 months, the stock has retreated a little over 12%.