VALUETRONICS HOLDINGS LIMITED
BN2.SI
Valuetronics Holdings Ltd - 3QFY3/18 Firing On All Cylinders
- Valuetronics Holdings' 3QFY18 core net profit (+30% y-o-y) at 29% of our/consensus full-year forecasts (9M18: 82%), deemed a beat despite slight seasonality weakness in 4QFY18F.
- Auto connectivity modules and printers led double-digit ICE sales growth y-o-y and q-o-q.
- CE sales to benefit from new series and wider market penetration of smart lighting.
- We do not expect supply chain issues, high utilisation level and Danshui lease expiry to significantly inhibit Valuetronics’s long-term growth.
- We raise our FY18-20F EPS by 5.2-8.2% on higher sales assumptions, but our Target Price remains intact at S$1.10 after factoring higher S$/HK$ FX rate. Maintain ADD.
Another record quarter in 3QFY18
- Valuetronics reported 3QFY18 core net profit of HK$56m, above our and Bloomberg consensus expectations. Industrial and commercial electronics (ICE) and consumer electronics (CE) segments both saw y-o-y and q-o-q growth during the quarter, which coupled with good cost control, contributed to 30% y-o-y increase in core net profit in 3Q (9MFY18: +42% y-o-y).
- Gross margin fell from 3QFY17’s 15.5% to 14.4% as a result of product mix changes; ICE and CE segments now make up 50/50 of overall topline.
Automotive connectivity modules, printers led ICE growth
- We were positively surprised by the double-digit y-o-y and q-o-q sales growth for ICE, which were driven by
- higher volume of in-car connectivity modules, and
- increasing printer sales from both new and existing customers.
- It has started mass production for certain products for its 2 nd automotive customer; we believe this would help contribute to earnings growth from FY19F onwards.
- We also think Valuetronics could potentially benefit from its auto OEM customer’s recent spin-off, in the form of new product types.
CE segment to grow along with more smart LED lighting series
- Backed by both consumer lifestyle and smart LED lighting products, Valuetronics’s CE revenue recorded 48.1% y-o-y and 5.4% q-o-q growth in 3QFY18. While sales of its 2 nd generation series of wireless lighting continue to perform well, its 3 rd and 4th generation series are already in the pipeline, with added features and enhancements.
- If Valuetronics succeeds in winning these new projects from the Dutch MNC, the rising market penetration of these new products could possibly give the company another leg up.
Key issues addressed
- Major concerns raised in Valuetronics's analyst briefing were:
- supply chain challenges,
- utilisation level, and
- Danshui lease expiry in 2021.
- Certain raw materials continue to be in shortage, but reprieve is likely in the coming quarters amid cuts in global smartphone production.
- We are also not overly concerned with the high utilisation level of its surface mounting technology (SMT) lines and plastic injection machines (80-90%), which could be resolved via higher automation. Discussion on Danshui lease renewal is still ongoing.
Reiterate ADD on higher EPS; Target Price unchanged at S$1.10
- As we raise our revenue assumptions for both ICE and CE, our FY18-20F EPS increased by 5.2-8.2%. Our Target Price is intact at S$1.10 (pegged to 11x CY19F P/E, in line with industry average) as we factor in higher S$/HK$ exchange rate.
- We maintain our ADD call on the stock which offers 4% FY18-20F dividend yield.
- Synergistic M&As and new customer wins are potential key catalysts, while unexpected order delay and cancellation are downside risks.
NGOH Yi Sin
CIMB Research
|
http://research.itradecimb.com/
2018-02-12
CIMB Research
SGX Stock
Analyst Report
1.100
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1.100
