Maybank Kim Eng 2015-08-18: Valuetronics Holdings Limited - Industrial to Wear the Trousers. Maintain BUY.


Industrial to Wear the Trousers 

  • LED light bulb business got considerably smaller; consumer revenue plunged 27% YoY in 1QFY3/16. Given low margins, impact on the bottom-line was contained. 
  • Acquisition of two new customers this year is expected to boost sales starting from FY3/17. 
  • We cut our FY16-18E EPS forecast by 2-4%. Maintain BUY with TP of SGD0.62. FY16 net dividend yield is 9.1%. 

LED vanishing quickly; 

  • Industrial remains solid Group revenue for 1QFY3/16 was down 12.2% yoy, gross margins up 14.3% (12.8% FY3/15) and net profit HK$33.5m (-1.1% yoy). LED revenue plummeted as several products approached end of life cycle. 
  • Elsewhere, consumer was stable. 1QFY3/16 Consumer revenue declined 27% YoY vs. our forecast of -10%. 
  • We forecast a 22% YoY decline in Consumer revenue in FY3/16 vs. -6% previously. 
  • Bottom-line impact would be less since margins for LED are tighter. Our forecast assumes LED gross profit to fall by 48% in FY16 to only 10% of group gross profit. 
  • Management is confident it will acquire a new customer, in the higher margined specialised LED product space, by the end of this year. 
  • We expect the Industrial business to remain healthy. Valuetronics is at the final phases of contract negotiation with an Industrial customer making printers. This customer should start contributing to revenue from FY3/17. 
  • We continue to forecast 12% YoY growth in Industrial revenue, thanks to new and existing customers. 

Undervalued & room for higher yield 

  • We cut our FY16-18 EPS forecast by 2-4%, following anaemic LED results. Earnings are expected to fall 6% this year, before returning to growth in FY3/17E. 
  • We forecast the dividend yield will remain high at 9-11% in FY16-18E. Cash is 67% of market cap, so there is room for higher yields. 
  • The stock is currently trading at 5.2x FY17E P/E. Our TP of SGD0.62 is based on 9.1x FY17 PER. Maintain BUY.

Truong Thanh Hang | Maybank KE 2015-08-18
BUY Maintain BUY 0.62 Same 0.62