Valuetronics - UOB Kay Hian 2018-08-15: 2Q18 ICE Segment Held The Fort; Expect Better Quarters Ahead

Valuetronics - UOB Kay Hian Research 2018-08-15: 2q18: Ice Segment Held The Fort; Expect Better Quarters Ahead VALUETRONICS HOLDINGS LIMITED SGX:BN2

Valuetronics - 2Q18: ICE Segment Held The Fort; Expect Better Quarters Ahead

  • Valuetronics’ 1QFY19 core net profit of HK$49.7m (+2.1% y-o-y) was in line, at 23% of our full-year estimate.
  • Smart lighting sales under the CE segment was temporarily affected as trade partners of their customer wound down inventories. However, the ICE segment recorded double-digit growth due to strong demand for connectivity modules used in the automobile industry.
  • Moving forward, Valuetronics expects the smart lighting product segment to recover and the ICE segment to continue benefitting from higher demand for automobile products.
  • Maintain BUY and target price of S$0.96.

~ ~ Where SG investors share


Results in line, ICE segment held the fort.

  • Valuetronics’ 1QFY19 core net profit was in line, despite a temporary softness in the consumer electronics (CE) segment due to lower demand for smart lighting. Revenue for the CE segment fell 15.6% y-o-y.
  • On the other hand, revenue for the industrial and commercial electronics (ICE) segment grew 15.2% y-o-y due to better demand for connectivity modules used in the automobile industry. A new series of automobile-related products are in mass production and new auto customers also contributed to growth.

Demand for smart lighting is recovering.

  • Customers of smart lighting indicated that they expect better sales in the second half of the calendar year. In addition, Valuetronics has also been enjoying better demand in the recent months.
  • On the other hand, other consumer lifestyle products in the CE division are expected to continue seeing stable growth thanks to more product innovation.

Supply chain challenges remain.

  • The cost and sourcing of key raw materials (including resistors, transistors, capacitors and etc) remain challenging due to strong underlying demand for the products. Valuetronics continues to manage affected inventories more prudently and passes on the additional costs to its customers.


Expect earnings to play catch up in the upcoming quarters.

  • Given that the recovery in the smart lighting segment is progressing smoothly and with continued robust growth from the ICE segment, we expect earnings to be better in the upcoming quarter.

Increasing cash hoard.

  • Net cash position increased to HK$757.2m or S$132.8m. This is equivalent to 42.2% of Valuetronics’s market cap and provides a good warchest for expansion.


  • We maintain our earnings forecasts.


  • Maintain BUY and PE-based target price of S$0.96, pegged to peers’ average of 11.3x for FY19.


  • Additional customers in the IoT space.
  • Additional customers in the automobile space.
  • Higher-than-expected dividends.

Singapore Research UOB Kay Hian Research | 2018-08-15
SGX Stock Analyst Report BUY Maintain BUY 0.960 Same 0.960