Valuetronics - RHB Invest 2016-05-30: FY16 Better Than Expected But Headwinds Lie Ahead

Valuetronics - RHB Invest 2016-05-30: FY16 Better Than Expected But Headwinds Lie Ahead VALUETRONICS HOLDINGS LIMITED BN2.SI 

Valuetronics - FY16 Better Than Expected But Headwinds Lie Ahead

  • Valuetronic’s industrial and consumer electronics (ICE) growth may slow down to 10% in FY17 (Mar) due to a much-larger base. Still, growth would mainly be from the full-year impact of the new automotive customer it secured in FY15. 
  • We also expect the absence of contributions from its LED unit to drag on 1Q17 earnings. 
  • We downgrade the stock to NEUTRAL (from Buy) with a DCF TP of SGD0.54 (from SGD0.50, 5% upside)
  • It reported a better than expected FY16 and maintained its dividend payout of 20 (Hong Kong) cents, ie a 63% FY16 NPAT payout ratio.



Absence of light-emitting diode (LED) revenue to impact 1Q17 earnings.

  • We expect the absence of revenue from its low-margin LED unit to drag on earnings (like in FY16), especially in 1Q17. The magnitude of the drag may be far less than what it suffered in FY16. 
  • We are of view that blended margins for its consumer electronics (CE) segment is likely to improve, going forward.


ICE growth to slow down to 10% YoY in FY17. 

  • In the past three years, ICE has constantly recorded strong revenue double-digit growth of 18-25% YoY. However, we expect this to slow down to 10% YoY in FY17, due to the much- larger revenue base, with growth primarily from the full-year impact of the new automotive customer it secured in FY15. 
  • It is working on a new model for this auto customer and are in negotiations to manufacture for a further two models.


Sustainable high dividends supported by strong balance sheet. 

  • We expect its net cash position of SGD0.36/share to continue to provide a strong foundation to sustain its high dividends, despite a decline in NPAT in FY16.


Now NEUTRAL. 

  • With macro-economic headwinds ahead, we are more optimistic on it chalking a better performance in FY18 vs FY17. 
  • Due to the potential earnings drag in 1Q17 and its share price reaching our TP, we downgrade our call to NEUTRAL with a slightly higher TP of SGD0.54. 
  • Key upside/downside risk is a more positive/negative macro-economic environment.




Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-30
RHB Invest SGX Stock Analyst Report NEUTRAL Downgrade BUY 0.54 up 0.50


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