LED fading in significance; U/G to BUY
- Upgrade to BUY from SELL with new TP of SGD0.62 from SGD0.25. We now value Valuetronics at 9.1x FY17 PER
- Raise FY3/16-17 EPS by 5-11%.
- Lighting business becoming less material. Estimated 10% contribution to FY3/15 operating profit. Company confident of acquiring new Consumer Electronics & Industrial customers.
LED’s importance has shrunk, so has its drag
- Valuetronics’ lighting revenue remains soft. We estimate that in FY3/15, LED revenue declined 21% YoY, contributing about 30% to the total and 49% to its Consumer Electronics revenue.
- Operating profit contribution is estimated at HKD17m or 10% of the total, due to a low margin of 2.3%.
- We forecast that LED revenue will decline 10-15% YoY pa in FY3/16-18.
- Given modest contributions, LED’s drag on earnings should also ease.
New customers expected in both segments
- Management is confident of acquiring new customers in both its Consumer and Industrial segments.
- It has been very selective in choosing new customers, as it aims to be their sole strategic supplier. It expects to add at least one Industrial customer this year.
- We prudently forecast that Industrial revenue will grow 12% YoY in FY3/16-18, a slowdown from last year’s 23% as two customers have completed their migration of production to Valuetronics’ facilities.
Upgrade to BUY with new TP of SGD0.62
- We raise our FY3/16-17 EPS by 5-11%.
- We benchmark Valuetronics’ forward PER to a group of small and mid-sized contract manufacturers, before adding back cash.
- We upgrade it to BUY with a new TP of SGD0.62 from SGD0.25. This is now based on 9.1x FY17 PER. Our previous TP was based on 4.4x FY16. Cash per share is SGD0.22.
- We expect yields to stay high at 7-8% in FY3/16-18.
(Truong Thanh Hang)
Source: http://www.maybank-ke.com.sg
