Valuetronics - RHB Invest 2018-02-14: Steady 3QFY18 Performance

Valuetronics - RHB Invest 2018-02-14: Steady 3QFY18 Performance VALUETRONICS HOLDINGS LIMITED BN2.SI

Valuetronics - Steady 3QFY18 Performance

  • On 9 Feb, Valuetronics reported a stronger 3QFY18 (Mar), with NPAT surging 35.7% y-o-y, which was slightly above our expectations. This was due to stronger revenue at its CE (+48.1% y-o-y) and ICE (+22.3% y-o-y) units. The company has a healthy balance sheet with zero debt, and net cash of HKD640.4m. 
  • Going forward, we expect this performance to continue for the remaining quarters of FY18. The company continues to face some supply chain issues but we do not think these would significantly affect its business. 
  • With the recent Valuetronics' share price correction, we upgrade our call to BUY (from Neutral) with an unchanged Target Price of SGD1.05 (14% upside).

Superb growth at the CE unit. 

  • The strong growth in Valuetronics’ consumer electronics (CE) segment in 3QFY18 was mainly driven by smart light-emitting diode (LED) lighting products, with Internet of Things (IoT) features.
  • Management remains optimistic about the growth prospects of the smart LED lighting product, as IoT devices are becoming more popular – this is expected to lead to its CE revenue surging 48.1% y-o-y in 2Q18.

In-car connectivity modules contributed to ICE growth. 

  • Its Industrial & Commercial Electronics (ICE) segment grew 22.3% y-o-y, mainly contributed by the increase in demand from some of its existing customers, as well as new projects involving in-car connectivity modules used in the automotive industry.
  • Going forward, we expect the ramp-up of these products to continue in FY18, and expect ICE revenue growth to be around 10-12% per year.

Solid balance sheet with first interim dividend given. 

  • As of 3QFY18, Valuetronics had a healthy balance sheet with zero debt, and a net cash of HKD640.4m. 
  • We expect management to increase its dividend payout for the year. Our total dividend yield forecast for F18F is around 4.8%.

Using cash pile for M&As. 

  • Previously, management mentioned that it aims to utilise the majority of its HKD640.4m 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.

Good growth to be sustained. 

  • Going forward, we expect this performance to continue for the remaining quarters of FY18, due to healthy growth drivers at both its business segments, especially for its in-car connectivity modules, which would likely increase due to increased demand for new experiences and connectivity features within the automotive vehicle.

Upgrade to BUY. 

  • With the recent share price correction, we believe that it is a good entry for investors who focus on yield returns. As a result, we upgrade the stock to BUY with an unchanged DCF-derived Target Price of SGD1.05.
  • Key risks include economic slowdown, forex risks, and raw material price fluctuations.

Jarick Seet RHB Invest | 2018-02-14
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