Valuetronics - RHB Invest 2017-05-31: A Superb FY17

VALUETRONICS HOLDINGS LIMITED BN2.SI

Valuetronics - A Superb FY17

Valuetronics enjoyed a superb FY17 (Mar). With a few new projects in the pipeline in its ICE segments, we expect both CE and ICE segments to grow at 10-12% YoY.
We consider that the share price has done very well especially in the recent few months, and with slower growth going forward we downgrade to NEUTRAL with a revised DCF-derived TP of SGD0.81 (from SGD0.65) after accounting for an expected rise of 6% and 8% in NPAT for FY18F and FY19F respectively.

Its CE segment has ramped up strongly in FY17, due to the introduction of a new smart lighting WiFi lightbulb, launched in 2Q17 by its existing customer. We expect the ramp up to continue, but at a slower pace of between 10-12% for FY18F.
We do expect the CE margins to be lower in FY18F due to the cost down element of these projects. We do however expect the company to try and improve their yield rate and process to minimize the drop in margins for this segment.

There are potentially a few new projects in the pipeline in its Industrial and Commercial Electronics (ICE) segment. The company is currently undergoing qualification by another automaker of an existing customer, and expect approvals in 2018F.
In addition, with an award given to the company by their automotive client, they expect to potentially gain more projects from other divisions of this existing customer.
The company also plans to launch a new product in the temperature sensing area while at the same time developing a new product with an existing customer.
Overall, we expect its ICE segment to grow at 10-12% for FY18F. However, we do expect a slight drop in margins as compared to FY17.

Management estimates that the probability of the lease renewal at the old factory (mostly for the CE segment) in Dan Shui, China, would be quite low, due to the major residential property developments that have occurred around the factory. As a result the management has started to plan for the relocation. In the event of a relocation though, we expect a capex of at least HKD100m, coupled with a three year ramp up timeframe.

Due to a slower growth ahead, the uncertainty of its land lease, coupled with the strong share price performance in the recent months, we downgrade to NEUTRAL.
Also we estimate a DCF-derived TP of SGD0.81 after accounting for its 10% bonus dilution as well as adjusting for a rise of 6% and 8% in NPAT for FY18F and FY19F respectively and higher capex expenditures.
We point to the attractive dividend yields of around 5% going forward.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-31

RHB Invest SGX Stock Analyst Report NUETRAL Downgrade BUY 0.81 Up 0.650