What's My View on NOTION Fire Incident?

Sadly to share that my return stumbled badly yesterday afternoon after one of my heavyweight invested listed companies got serious fire incident at the main factory. This is the first time in my life suffering so much loss from share investment.

As per quick phone interview with the company director published by the media, he expressed that there’s about 500 control machines were affected, estimated $150 million losses and roughly needs 9 months to recover! And their existing inventory can only last for 2 months.

Once this news spreads out yesterday noon, the counter share slumped 30% just within an hour and it’s been suspended due to hit the down limit. And it also hits the highest volume among the entire stocks, about 36.7 million shares transacted within an hour! Not only that, it also created the highest volume record since listed from 2005! Why majority of the shareholders has just a big reaction while fire incident is not something new for manufacturer?

Unfortunately, this is not the first time for this company to hit fire incident. The previous incident was occurred in Jan 2014, merely less than 4 years! And this time, the estimated losses and recovery time are at least 3 times worse than the previous fire incident!

To me, it’s not a big deal about the fire incident and one-time loss, as most probably they can be recovered 80 to 90% via insurance compensation. What matters me is the company reputation and customers’ order! With the production is affected for 9 months or more, how can they deliver the goods to customers as their inventory only can last for 2 months?

I’m not sure the current factory capacity % and number of control machines at Plant 2, 3 & 4, but the affected factory is the core production site which consists of 1,500 control machines and about 1/3 of the machines are affected by fire. As per director's feedback, they have about 200 control machines can be utilized to fulfill the capacity, but what about the remaining 60% capacity?

Put aside the trust and the upcoming 9 months affected income, if they are not able to deliver the goods to customer but the customers are growing, what will happen next? The customers will definitely approach other manufacturers for the orders, may be for short term. But if other manufacturers are aggressive enough, providing perhaps a better quality and price than this problematic company, what will happen next? That’s what I worry about.

The revenue can sure come back upon the rebuild of the machines and production. But trust and orders cannot once customers ran away. Unless the management is able to demonstrate the outstanding leadership and effective way to solve this production issue, else I think that’s it.

Another plus point is the company can leverage this opportunity to buy new control machine equipped with latest technology with less labor intensive, better quality and higher quantity! With bulk purchase of 500 control machines, the money compensate by insurance company may able to cover the new machine while greatly improve efficiency in the near future.

The company market capitalization is about $312m before slump, and now at $230m upon slumped. Can you see that? The fire incident has caused $150m loss but the capital is only $230m. It looks very attractive provided the management takes a prudent steps to pinpoint this issue by next week.

Well, crisis always comes with opportunity. I think most probably I’ll give it a small shot on next Monday to average down my buying price, regardless the share price slumps further, retains or bounces back. I think this company is still having a bright future, but perhaps I have to hold longer than I expected now.

Related Articles by Categories