Thursday, March 17, 2011

Nikon closes 4 plants in Japan, OSK Research Neutral on Notion VTec

KUALA LUMPUR: OSK Research is maintaining its Neutral call on Notion VTec for now with an unchanged target price of RM1.85 at 7.0 times FY11 PER after Nikon Corp said four of its production plants in Japan were closed.

Reuters reported on Thursday, March 17 the facilities included two out of its precision equipment plants, but the effect on cameras and lenses is seen as minor, since almost all output for those devices is done in Thailand.

Nikon does not have a timetable to re-open the plants.

Shares of Notion VTec fell three sen to RM1.71 at 4.23pm with 316,500 shares done.

OSK Research said it was maintaining its'' NEUTRAL call for now at an unchanged TP of RM1.85 at 7x FY11 PER pending more affirmative signals from Nikon as the magnitude of damage to its core facilities and the restoration timeline are currently uncertain.

'The downside risks to earnings are likely to go up if Nikon's suspension of operations and production halt are prolonged,' it said.

Notion's camera division contributed more than 50% of its consolidated revenue as of 1QFY11, with Nikon as its key customer.

'Prolonged disruption in Nikon's operation and production could put a dent on our earnings forecasts although we gather from management that there is no immediate stop order on its cam barrel production for now,' it said.

OSK Research also said it understood the company wasactively discussing with Nikon on possible relocation of all machining works previously handled at the Sendai Nikon factory to Notion's Factory 3 in Klang, which has clean room facilities and ample room for such contingencies.

The research house said Factory 3 has a built-up of 190,000 sq ft and was previously meant for 2.5-inch baseplate production.

'Nonetheless, we gather that the agreement has yet to be finalised at this point of time,' it said.

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