Valuetronics (VALUE SP) - Maybank Kim Eng 2017-08-16: Of Auto Accoutrements And Fancy Lights

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VALUETRONICS HOLDINGS LIMITED BN2.SI

Valuetronics (VALUE SP) - Of Auto Accoutrements And Fancy Lights

IOT bulbs, in-car connectivity modules drive growth 

• We hosted a post-1Q18 results NDR for Valuetronics (VALUE). Management are optimistic about growth momentum of recent quarters being sustained from IOT lighting and in-car connectivity modules. 
• We believe IOT bulbs demand should rise with energy-related rebates in the US allowing for a broader target market. 
• Meanwhile, its automotive projects have growing revenue potential from in-car connectivity modules gaining adoption across a broader range of OEM models as well as a new end-customer.

Key meeting takeaways: 

• Valuetronics's 1QFY18 results beat street estimates: 
  • NPAT of HKD48.7m (+65% YoY, +12% QoQ) made 28.7% of FY18 consensus forecast (three estimates).
  • Revenue of HKD695.7m (+46% YoY, +9% QoQ) was propelled growth in
    1. IOT lighting (consumer electronics), and
    2. in-car connectivity modules (industrial and commercial electronics). EBIT margin expanded 0.8ppt YoY to 8% through operating leverage.

US rebates could drive IOT lighting adoption: 

• VALUE observed that majority of IOT lighting shipments were to North America and Europe.
• We understand that as VALUE’s IOT bulb is ENERGY STAR certified, and is eligible for smart-bulb rebates, which could accelerate adoption in the US. The market is in a nascent growth stage, in part driven by rising take-up of smart home hubs (e.g. Amazon Echo).

New automotive end customer: 

• VALUE has been qualified by a new automotive end-customer, and will commence trial production soon.
• VALUE is optimistic towards automotive prospects as OEMs increasingly introduce in-car connectivity modules in mass-market models.

Sustained margins through operating efficiency: 

• VALUE is confident in managing gross margins in the current 14-16% range, despite rising costs.
• Efficiencies will be extracted by enhancing JIT management and yield, as well as increasing automation and production floor multitasking.

Valuation

• VALUE is currently trading at 12.5x FY18 consensus P/E (8.6x on ex-cash basis), on EPS growth expectations of 20%. 
• The Buy/Hold/Sell spread is 1/3/0 with mean target price of SGD0.93.

Neel Sinha Maybank Kim Eng | Lai Gene Lih Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-16

Maybank Kim Eng SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998.000 Same 99998.000