Valuetronics Holdings

VALUETRONICS HOLDINGS| ADD

TARGET PRICE: $0.95

MAY 30 CLOSE: $0.775

CGS-CIMB Research, May 28

Valuetronics reported FY3/18 core net profit of HK$201 million (S$34.4m) (+33 per cent year-on-year), on the back of higher sales from consumer electronics (CE) and industrial & commercial electronics (ICE).

This formed 97-99 per cent of Bloomberg's consensus forecasts. 4QFY18 core net profit grew only 7.1 per cent y-o-y.

Apart from seasonality weakness (timing of Chinese New Year affected labour issues), inventory reduction of smart lighting products and shortage of critical components also contributed to slower CE and ICE sales, respectively.

Consumer lifestyle products, particularly electric toothbrushes, were one of its key outperformers in FY18, posting double-digit growth. We expect increasing product penetration and market depth to underpin such sales momentum into FY19F, thereby offsetting possible revenue decline from wireless lighting, which could undergo some destocking over 1-2 quarters.

The short order visibility for smart lighting (2-3 weeks) could pose near-term uncertainty.

We project the ICE segment to deliver another year of double-digit topline growth in FY19F. The auto segment could see higher revenue from new product launches and ramp-up of sales to its second OEM (original equipment manufacturer) customer.

The stock currently trades at 9.5 times of 12-month forward price earnings (6.0 times ex-cash). We cut our FY19-20 forecast earnings per share by 4.2-8.4 per cent on lower sales assumptions, and our target price falls to $0.95, now pegged to 10 times CY19F P/E (prev 11x), on par with industry average.

Downside risks are unexpected order delays or cancellations while faster sales normalisation of smart lighting or new customer wins could catalyse the stock.

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