Notion: A Fiery Moment, A Golden Opportunity? (UPDATED)

Last Friday, Notion dropped sharply hit limit-down price of RM0.66 before rebounding to RM0.70. At around 3.30-4.00pm, Notion was suspended. Later we learned that a fire broke out at its main manufacturing plant in Klang (here).

In the annual report for FY2016, Notion listed down

• 1 Storey Factory with a 2 Storey Office located at Lot 6071, Jalan Haji Manan, Batu 5 1/2, Off Jalan Meru, 41050 Klang, Selangor
• 2 Storey Office Building with Factory Building located at Lot 6123, Jalan Haji Salleh, Batu 5 1/2, Jalan Meru, 41050 Klang, Selangor
• 3 Storey Office Building with Factory Building located at Lot 6123, Jalan Haji Salleh, Batu 5 1/2, Jalan Meru, 41050 Klang, Selangor
• Factory Buildings located No.1/48, Rojana Industrial Park Moo 5, Tambol Kanham, Amphur U-Thai. Pranakorn Sri Ayutthaya, 13210, Thailand
• 1 Storey Industrial Lot located at 63 Tambon Thanu, Amphur Uthai, Pra Nakhon Sri Ayutthaya Province, Thailand

The fire is probably insured. Since this is one of 5 major facilities, the damage will lead to a sharp drop in revenue and, most likely, losses for 1-2 quarters. When the insurance compensation is received, the company will probably make a bigger-than-normal profit.

The question is whether the current price is a good buy. At the closing price of RM0.70, Notion is now trading at a trailing PER of 10.6x & at a Price to Book of 0.64x (assuming the insurance coverage is adequate & includes loss of business).

Chartwise, it is now trading near the strong support from the horizontal line at RM0.67-0.70. Next support is another horizontal line at RM0.50.

I believe the current price could well have fully factored in the loss, if not over-factored in the loss. Thus I believe Notion could be a good buying opportunity.


Chart: Notion's weekly chart as at Oct 20, 2017 (Source: Malaysiastock.biz)

Update:

Notion made an announcement this morning. To wit:

"Notion has adequate insurance coverage - RM350 million for property damage, RM217 million for business interruption up to 18 months. Preliminary estimate of the loss is about RM150 to 200 million. Once we gain access to the site we shall be able to assess the extent of damage and provide a more accurate estimate of loss."

I believe that this announcement should have a positive effect on the share price.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.