This article first appeared in The Edge Malaysia Weekly on June 24, 2024 - June 30, 2024

Notion VTec Bhd (KL:NOTION) has seen its market value increase fourfold to RM1.2 billion in the space of five weeks since mid-May.

The company, which produces high-end precision machine components that cater for the hard-disk drive (HDD), automotive and electronic manufacturing services (EMS) sectors, stated that there was nothing extraordinary in its ordinary course of business that warrants the unusual share price movement.

Replying to the exchange, Notion VTec stated that there was a turnaround in the HDD and EMS sectors that had contributed to the improved performance in the first half of its operations.

For the first six months until March 31, 2024, this year, Notion VTec registered a net profit of RM22.6 million on a turnover of RM205.4 million. It has staged a turnaround compared to the loss of RM7.8 million on a turnover of RM168 million in the corresponding period last year.

Even if the profit doubles this year, does this warrant a fourfold jump in the valuation of the company?

At its current price, Notion VTec is valued at a forward price-earnings multiple of more than 30 times.

Usually, companies that are able to show high growth in profits on a sustained basis command high valuations. Notion VTec is not in that category of companies in the electronic industry.

Moreover, the HDD segment is a crowded field and other players would also jump into the game.

Apart from the long-term shareholders of Notion VTec, the biggest beneficiaries are warrant holders who got their shares for free on May 13.

Notion VTec issued 51 million free warrants on the ratio of one for every 10 shares held. The warrants were listed at 28 sen each. They traded at a high of RM2, marking a bounty within five weeks.

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