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

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. 

LED Reaching the Bottom; New Industrial Customers 

  • 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. 

Still Positive; Maintain BUY 

  • 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