Notion (Buy, TP: RM2.69)
Smile for the Camera
§ The company is expected to be a beneficiary of Nikon’s increasing market share in the interchangeable camera lens segment, forecast by CIPA to grow +20.2% yoy in 2011.
§ Notion is also expected to be a longer-term beneficiary of Nikon’s Business Continuity Management (BCM) plan, which should see production reallocated to Notion as a trusted outsourcing component supplier.
§ The camera segment contributes 50% of Notion’s revenues and enjoys the highest margins amongst all the business divisions.
§ The company’s HDD division would be supported by the continued demand for HDDs, forecast to grow +9% in 2011. The SSD pricing gap is expected to remain wide over the next few years, which should alleviate concerns of HDD obsolescence.
§ Notion is trading at undemanding PERs of 6.3x and 5.7x for FY11 and FY12, about half a standard deviation below its historical PER average of 7.96x. The stock is supported by net dividend yields of 3.1%.
§ Initiate coverage with a Buy. Near-term weak demand for HDDs and supply disruptions in the Camera segment are expected to yield opportunities for entry into the stock. Our target price of RM2.69 is based on a 2-year forward average PER of 7.96x as we believe Notion should be re-rated back to its mean due to its position within the Camera space.
February Inflation Report
§ The CPI growth accelerated further to 2.9% yoy in Feb (Jan: +2.4% yoy), higher than the consensus estimate of 2.6%. MOM basis, the CPI increased by 0.5%..
§ Domestic food prices accelerated to 4.7% yoy (Jan: +3.6% yoy) and contributed 48% of the CPI growth. Non-food prices also picked up to 2.1% yoy (Jan: +1.9% yoy), a firm sign that domestic price pressure is on the rise with some second round impact.
§ We now revise our CPI growth forecast to 3% for 2011 from 2.5% earlier. We expect inflation to shoot past 3% level in March and sustain between 3–3.5% in 2Q and 3Q before dipping below 3% in 4Q.
§ We now see BNM raising the OPR by 25bps in the May MPC meeting. Despite moderate economic data trend, BNM can still afford to pre-emptively hike 25bps to 3% while still remain accommodative, as hinted in the MPS.
FBM KLCI: To retest 1525-1537 pts in the short term
§ The KLCI is likely to trend higher this week amid overnight gains on Wall St and strengthening technical indicators.
§ Expectations of more positive announcements in the upcoming April Invest Malaysia event and a resounding BN victory in the upcoming Sarawak state election on 16 April are likely to keep broader market alive and resilient.
Dow Jones: Marching towards upper Bollinger band
§ Despite external headwinds, Dow managed to rebound strongly by 5.8% from 16 March’s nadir, amid generally positive economic data, strong corporate earnings and rising M&As.
§ This will further support current positive market sentiment to retest strong resistance zone of 12500 pts whilst immediate supports around 11800-12000.
§ This week major economic data in March are consumer confidence (29 March), ADP employment (30 March), nonfarm payroll and ISM (1 April).
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