KUALA LUMPUR: Notion VTec Berhad's earnings to be weighed by substantial foreign exchange (forex) losses in the coming quarter following the ringgit steep appreciation.
Hong Leong Investment Bank Bhd (HLIB) said the precision machined components manufacturer has seen its share price dip from the recent peak due to sharp appreciation of ringgit and brokers imposing cash upfront requirements, which dampened sentiment.
The research firm said the company's share price performance has experienced a significant decline of 57 per cent, a correction from the 52-week high of RM2.45 to the RM1.05 closing price on Sept 4.
"The ringgit's strength is poised to weigh heavily on the group's financials, resulting in substantial forex losses (non-core) in the coming quarter, which might not reflect the true picture of its robust operations.
"Looking ahead to this forex impact, the company's near-term outlook remains solid, with promising sales volume growth anticipated across its hard disc drive (HDD), electronic manufacturing services (EMS), and automotive segments throughout the remainder of financial years 2024 and 2025 (FY24-25)," the firm said in a research note.
Despite the forex impact, HLIB maintains Notion VTec's core earnings forecast for FY24-26 as it remains intact.
The research firm reiterated the "buy" call with a lower target price of RM2.74 compared to RM3.28 previously, as it trimmed the assigned price-to-earnings (P/E) ratio to 25 times from 30 times.
It stated that the adjustment reflects the subdued sentiment surrounding export-orientated companies in view of the less favourable forex.
"Despite this, we remain positive on Notion VTec's impressive turnaround and its strong earnings growth trajectory.
"The company is well positioned to capitalise on increasing adoption of artificial intelligence (AI), advancements in disc storage capacity, global manufacturing diversification, and revival of the electrical and electronics (E&E) sector," HLIB added.
At 10.18 am, the company's share price traded lower by 2.0 sen, or 1.9 per cent at RM1.03, with its market capitalisation worth RM540.6 million.