VALUETRONICS HOLDINGS LIMITED
BN2.SI
Valuetronics Holdings Ltd - 4Q17 New Orders In Ramp-up Phase
- FY3/17 core net profit of HK$151m was ahead of our/consensus full-year numbers.
- We expect both CE and ICE segments to continue their double-digit sales growth in FY18F, thanks to roll-out of newly-launched products.
- Lower operating cash flow in FY17, but cash conversion cycle is steady at 42 days.
- Maintain Add with a higher TP of S$0.89 (11x CY18 P/E, a narrower discount of 10% to peers’ average). Valuetronics currently trades at 11.2x FY18 P/E (6.3x ex-cash).
Results beat by a better-than-expected 4Q17
- Valuetronics reported FY3/17 topline of HK$2,275m (+16.5% yoy) and core net profit of HK$151m (+25.1% yoy), above our forecasted HK$2,123m and HK$137m respectively.
- The results beat mainly came from a stronger-than-expected 4Q17, as sales climbed 44.0% yoy and 8.3% qoq, due to the building of inventory ahead in 3Q17 and delivered in 4Q17.
- Gross margin dipped to 14.2% (3Q17:15.5%) during the seasonally-weaker quarter, leading to a 5.3% qoq fall in 4Q17 core net profit (HK$40.9m, +36.4% yoy).
CE and ICE firing up
- Both industrial & commercial electronics (ICE) and consumer electronics (CE) segments registered strong growth in FY17 at 14.1% and 19.7% yoy respectively, driven by the automotive (AU) connectivity modules and wireless lighting with IoT features.
- We expect such sales momentum to be sustained into FY18F as these new products enter mass production and initial phase of product lifecycle respectively, underpinning our FY18-20F sales forecasts of 10-12% p.a.
- We also estimate gross margins to trend downwards.
Qualification by another automaker still underway
- Valuetronics also announced a recent award win for supplier excellence with its major AU customer (tier-1 automotive parts manufacturing company), reflecting its integral role as part of the supply chain for two years.
- While the audit completion by a new OEM for its AU connectivity modules has been postponed to end-FY18, we think this could give the firm another leg-up when the new orders kick in.
Lower operating cash flow, but steady cash conversion cycle
- Valuetronics recorded FY17 operating cash flow of HK$161m, lower than FY16’s HK$289m as a result of more cash tied up in working capital. Its cash conversion cycle was stable at 42 days in FY17, vs. 45 days in FY16.
- The company remains in a net cash position (with zero borrowings), that makes up c.39% of its market cap (excluding AFS assets).
Potentially limited dividend upside in the near-term
- The company declared final DPS of 15 HKcts and special DPS of 5 HKcts, implying 4.4% FY17 dividend yield.
- We suspect near-term upside to dividend payout may be capped (30-50% dividend policy) as higher business activities may require more working capital, and key customers request for more favourable credit terms.
- There is also a possibility of non-renewal of the Danshui factory lease (expires by end-2020), which may result in setting aside more capex should management decide to look for an alternative site.
Maintain Add on higher EPS estimates
- We raise our FY18-19F EPS estimates by 5.7-12.9%, to factor in higher sales growth, gradually declining gross margins and lower operating costs.
- We also introduce FY20 forecasts, and our TP thus increases to S$0.89 (adjusted for 1:10 bonus issuance). This is pegged to 11.0x CY18 P/E (prev. 9.8x), now at a smaller 10% discount to industry average of 12.2x.
- The stock offers 4.3-4.8% FY18-20F dividend yield.
- Risks to our Add call include unexpected order pushback.
NGOH Yi Sin
CIMB Research
|
William TNG CFA
CIMB Research
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http://research.itradecimb.com/
2017-05-29
CIMB Research
SGX Stock
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