Valuetronics - RHB Invest 2017-11-10: Riding On The Tech Manufacturing Boom

VALUETRONICS HOLDINGS LIMITED BN2.SI

Valuetronics - Riding On The Tech Manufacturing Boom

Valuetronics reported a stronger 2QFY18, with NPAT surging 33.5% YoY, slightly above our expectations. This was contributed by 45.7% YoY and 10.5% YoY revenue growth from its CE and ICE segments respectively.
The company also has a healthy balance sheet with zero debt. Its net cash and financial assets stands at HKD713.1m.

We expect this performance to continue for the remaining quarters of FY18. As a result, we raise our FY18 and FY19 NPAT estimates by 4%, resulting in a higher DCF-backed TP of SGD1.05 (from SGD0.93, 5% upside). Maintain NEUTRAL.

The strong growth in Valuetronics’ CE segment in 2QFY18 (Mar) was mainly driven by smart light-emitting diode (LED) lighting products with Internet of Things (IoT) features.
Management remains optimistic on the growth prospects of the smart LED lighting products, as IoT devices are becoming more popular. This led to its CE revenue to surge 45.7% YoY during the quarter.

Its ICE business grew 10.5% YoY, mainly contributed by the increase in demand from some of its existing customers, as well as new projects involving in-car connectivity modules used in the automotive industry.
Going forward, we expect the ramp up of these products to continue for FY18, and expect this segment’s revenue growth to be around 10-12% pa.

As at 2QFY18, Valuetronics had a healthy balance sheet with zero debt as well as net cash and financial assets of HKD713.1m. As a result, management has decides to reward shareholders with the first ever interim dividend of HKD0.07.
We expect the total dividend yield of F18F to be around 4.5%.

Previously, management mentioned that it aims to utilise the majority of its HKD627.5m cash pile for M&As. Valuetronics’ targets include downstream players, or horizontal businesses that fit and synergise with its existing business – which now boasts stronger fundamentals.

Going forward, we expect this performance to continue for the remaining quarters of FY18 due to healthy growth drivers from both its businesses, especially its in-car connectivity modules, which are likely to increase due to the rising demand for new experiences and connectivity features within an automotive vehicle. As a result, we raise our FY18 and 19 NPAT estimates by 4%, resulting in a higher DCF-backed TP of SGD1.05.
Due to a less than 10% upside to our TP, we maintain NEUTRAL call on this counter for its attractive dividends.
Key risks are the economic slowdown, forex and raw materials price fluctuations.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-10

RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.05 Up 0.930