Valuetronics - Riding On IOT Megatrends
- With a better-than-expected 2QFY17, we do expect the momentum of its CE segment to carry on. This is while riding along the megatrends of IoT as well as automotive projects in the ICE segment to pick up at end-FY17 and start of FY18.
- We also expect a potential dividend pay-out ratio of 55% for FY17, translating to a dividend yield of 7.2%. However, in light of the difficult macroeconomic environment, we understand that many customers are seeking increased payment terms which would potentially affect its cash flow.
- Maintain NEUTRAL with a SGD0.57 TP (from SGD0.54, 6% upside).
Consumer electronics (CE) segment back to growth mode.
- In the advent of Internet of Things (IoT), Valuetronics has managed to tap on these megatrends and capture two new projects, which delivered 9% YoY growth for its CE segment. They are:
- Smart wirelessly controlled light bulbs with a higher cost of manufacturing compared to conventional light bulbs but gross margins unchanged;
- A smart flushing function that commands slightly higher margins.
Possible growth in dividends.
- In light better results experienced by the Group for 1HFY17 (Mar), we expect a potential dividend pay-out ratio of 55% for FY17F, translating to a dividend yield of 6.9%.
Payment terms may potentially increase.
- In light of the difficult macroeconomic situation, we understand that many customers are seeking increased payment terms, which would potentially affect its cash flow.
- Key Risk: Economic slowdown
Maintain NEUTRAL with a DCF-backed TP of SGD0.57.
- In light of a better 2QFY17, we increase our FY17 estimates by 11%, resulting in a higher DCF- backed TP of SGD0.57. However, in such a weak macroeconomic environment, we prefer to be cautious and maintain NEUTRAL on this stock.