Valuetronics - Maybank Kim Eng 2015-11-17: More Customers to Come

VALUETRONICS HOLDINGS LIMITED BN2.SI

Valuetronics (VALUE SP) - More Customers to Come

Post-briefing note. Expect Valuetronics to exit LED business in next two quarters.
Industrial sales growing strong, thanks to new customers.
We cut our FY17-18 EPS by 9-16%. Maintain BUY with new TP of SGD0.57 down from SGD0.62, still based on 9x FY17 P/E.

2QFY3/16 was down 16% YoY, gross margins up 14.6% (13.1% 2QFY3/15) and net profit down 11% YoY.
Consumer revenue declined 41% YoY in 2QFY3/17, as 90% of LED products are approaching the end of their product life.
LED made up 15% of total revenue in 2QFY3/16.
We expect the LED decline to continue in the next two quarters, so Consumer revenue will mainly be contributed by consumer lifestyle products, for which revenue has remained stable.
On the bright side, Valuetronics acquired new Industrial customers, including a US-based automotive customer, which already contributed a significant 3-5% to total revenue. The type of electronic product manufactured has not been disclosed, but we understand the new customer is a tier-one supplier serving automotive companies.
Valuetronics is the exclusive manufacturer for one of its brands. Management also expects two additional customers in 2HFY3/17, in the printer and telcom industries.
Gross margins are expected to expand from 13.1% in FY3/15 to 14.6% in FY3/16, thanks to a better product mix.

We cut our FY15-17 EPS by 9-16% to reflect the quick LED decline.
Dividend yields are expected to remain high at 7-8%. The stock trades at 6.5x FY17 P/E or 2.6x ex-cash vs peers’ average 9.2x.
Maintain BUY with lower TP of SGD0.57 (from SGD0.62), based on 9x FY17 P/E.
We expect catalysts from new customers and margin expansion.

Truong Thanh Hang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-17

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.57 Down 0.62