Valuetronics - RHB Invest 2017-08-16: Great Start To The Year

Valuetronics - RHB Invest 2017-08-16: Great Start To The Year VALUETRONICS HOLDINGS LIMITED BN2.SI

Valuetronics - Great Start To The Year

  • Valuetronics enjoyed a strong start to a year, with NPAT up 64.8% YoY for 1Q18, driven by strong growth from both its CE and ICE segments. It was also recently qualified by another automaker. 
  • There would be more projects scheduled to be launched later this year that involve its ICE division. This, coupled with the stronger-than-expected growth of its CE unit (driven by smart LED lighting with IoT features) leads us to upgrade our FY18F NPAT by 14.5%. 
  • As such, our DCF-based TP rises to SGD0.93 (from SGD0.85). Maintain NEUTRAL.



Superb growth from consumer electronics (CE) unit. 

  • The strong growth in Valuetronics’ CE segment in 1QFY18 (Mar) was mainly driven by smart light- emitting diode (LED) lighting products with Internet of Things (IoT) features. 
  • Management remains optimistic on the growth prospects of the smart LED lighting product, as IoT devices are becoming more popular.


Automotive projects lining up. 

  • There are a few potential new projects in the pipeline for its industrial and commercial electronics (ICE) segment, which was recently qualified by another automaker. 
  • During a visit to its factory a few months ago, we saw new machines that may be used for a new manufacturing line, created for a new product for its automotive segment. 
  • Valuetronics will also launch a new product in the temperature-sensing area, while developing a new product with an existing customer at the same time. 
  • All in all, we expect its ICE segment to grow 15-20% YoY in FY18 – although we do expect margins to narrow slightly YoY in the same period.


Uncertainty over Dan Shui factory. 

  • Valuetronics’ lease for its old factory in Dan Shui, China – which is mainly involved in CE manufacturing – will expire in 2020. Management believes the probability of the lease being renewed is low, as there are major residential property projects being developed in the vicinity. 
  • It has embarked on a relocation plan, and aims to move its manufacturing facility to another site. We expect this to incur capex of at least HKD100m. The relocation process would take three years to complete, if it happens.


Using cash pile for M&As. 

  • At its results briefing yesterday, management said that it aims to utilise the majority of its HKD752.9m cash pile for M&As. Targets would be downstream players, or horizontal businesses that fit and synergise with its existing business – which now boasts of stronger fundamentals.


Maintain NEUTRAL, with a higher DCF-backed TP of SGD0.93. 

  • With more projects set to be launched later this year that involve its ICE division, as well as the stronger-than-expected growth of its CE unit, we upgrade our FY18F NPAT by 14.5%. As a result, our DCF-based TP rises to SGD0.93. 
  • We maintain NEUTRAL on this counter. 
  • In the meantime, investors can hold on to the stock for its attractive dividends yield of around 4.6%.





Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-16
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.93 Up 0.850



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