VALUETRONICS HOLDINGS LIMITED
SGX:BN2
Valuetronics Holdings - Attractive Valuation; Expect Minimal Impact From The Flood At Danshui Plant
- We believe the impact from a flash flood at the Danshui plant is minimal as:
- the plant manufactures lower-margin products and most of the production facilities were not affected;
- Valuetronics has taken precautionary measures to locate its key production lines on the higher floor after a flash flood in Jun 08; and
- the main Dayawan plant is not affected.
- Current valuations look attractive at 3.7x FY19F ex-cash PE and 7.3% dividend yield for FY19F while net cash of S$137.3m is equivalent to 51% of market cap.
- Maintain BUY and PE-based target price of S$0.96.
WHAT'S NEW
Flood in Danshui plant caused temporary disruption but no major damages.
- On 17 Sep 18, Valuetronics Holdings (Valuetronics) announced that the heavy rains bought by super typhoon Mangkhut which hit southern China the day before has caused flash flooding at one of its manufacturing facilities in Danshui town, Guangdong Province in China. All employees are safe and the majority of the production facilities at the Danshui plant are not affected. However, the flash flood has caused power outages which resulted in temporary work stoppages at the plant.
- Valuetronics is assessing the full impact of the flood on its production lines at the plant and plans to resume production expeditiously.
~ SGinvestors.io ~ Where SG investors share
Expect minimal financial and operational impact.
- We think the flash flood is not likely to cause significant disruption as:
- the Danshui plant only manufactures products for the lower-margin consumer electronics (CE) segment, which is estimated to contribute 30% of total gross profit, and a one-week closure will only reduce gross profit by 0.6%;
- management has taken precautionary measures to locate its key production lines on the higher floor after a flash flood in Jun 08. Quick recovery actions were taken in 2008 and key operations resumed seven days after the flash flood; and
- the main Dayawan plant was not affected.
- ~ SGinvestors.io ~ Where SG investors share
Attractive valuation; expect better quarters ahead.
- After a price correction of 18.7% over the last one month, current valuation looks attractive at 3.7x FY19F ex-cash PE and net cash of S$137.3m is equivalent to 51% of current market cap.
- ~ SGinvestors.io ~ Where SG investors share
- Furthermore, we expect earnings to be better in the coming quarter as Valuetronics has started to see a recovery in the smart lighting segment in Jul 18 and continues to see robust growth from the industrial and commercial electronics (ICE) segment.
Rare share buyback a vote of confidence.
- On 18 Sep 18, Valuetronics bought back 630,000 shares at S$0.6334 per share. This is its second buyback in the past 12 months and we believe this sends a positive signal that the shares are undervalued. See latest share buyback transactions.
STOCK IMPACT
Expect earnings to catch up in the coming quarters.
- ~ SGinvestors.io ~ Where SG investors share
- 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 coming quarter.
Increasing cash hoard.
- Net cash increased to HK$807.6m, or S$137.3m. This is equivalent to 50.7% of its market cap and provides a good war chest for expansion.
EARNINGS REVISION/RISK
- We maintain our earnings forecasts.
VALUATION/RECOMMENDATION
- Maintain BUY and PE-based target price of S$0.96, pegged to peers’ average of 11.3x for FY19.
SHARE PRICE CATALYST
- Additional customers in the IoT and automobile space.
- Higher-than-expected dividends.
John Cheong
UOB Kay Hian Research
|
https://research.uobkayhian.com/
2018-09-20
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