Valuetronics - RHB Invest 2016-05-30: FY16 Better Than Expected But Headwinds Lie Ahead | SG Investors.io

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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