Valuetronics Holdings - UOB Kay Hian 2018-09-24: Clear Skies Ahead

VALUETRONICS HOLDINGS LIMITED (SGX:BN2) | SGinvestors.io VALUETRONICS HOLDINGS LIMITED SGX:BN2

Valuetronics Holdings - Clear Skies Ahead

  • Key takeaways from the recent management conference call:
    1. limited impact from recent flood at Danshui plant which has resumed operations,
    2. new US$200b trade tariff from the US does not pose a huge threat, and
    3. utilisation rate for CE segment remains healthy at > 90%.
  • Current valuations look attractive at 4.3x FY19F ex-cash PE and 6.8% dividend yield while net cash is equivalent to 47% of market cap. We expect better profits in the quarters ahead.
  • Maintain BUY and target price of S$0.96.



WHAT'S NEW


Limited impact from flood, Danshui plant has resumed operations.

  • After the flash flood on 17 September, Valuetronics highlighted that its Danshui plant started minimal operations on 19 September with back-up generator and actual operations resumed on 21 September when power was restored. The flood only destroyed some raw materials and management took swift action to replenish them from its suppliers. The finished goods located on the higher floors were not impacted.
  • In addition, Valuetronics has full insurance coverage for its inventories. Current inventories are sufficient to sustain production for the next two weeks and management will implement overtime to catch up on the time loss in production.


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Minimal financial impact from US$200b trade tariff, exploring expansion in ASEAN.

  • Management estimates that less than 10% of its revenue will be impacted by the new round of trade tariff. In addition, given that its current delivery arrangement with its customers is based on free on board (FOB) basis where Valuetronics is only responsible to deliver its products to the port of departure, there will not be any impact for the affected goods.
  • In addition, it is exploring to expand into ASEAN to reduce future impact from the US trade tariff.

Utilisation rate remains healthy.

  • Valuetronics highlighted that utilisation in the consumer electronics (CE) segment remains healthy at more than 90%. We think this bodes well for profits in the quarters ahead.

Attractive valuation; expect better quarters ahead.

  • After share price correction of 18.7% over the last one month, current valuation looks attractive at 4.3x FY19F ex-cash PE and net cash of S$137.3m is equivalent to 46.6% of current market cap. 
  • Furthermore, we expect better earnings in the coming quarter as the CE segment is enjoying a high utilisation rate and on expectations that the robust growth from the industrial and commercial electronics (ICE) segment to continue.


STOCK IMPACT


Expect earnings to catch up in the coming 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 coming quarter.

Increasing cash hoard.

  • Net cash increased to HK$807.6m, or S$137.3m. This is equivalent to 46.6% of its market cap and provides a good warchest 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/ 2018-09-24
SGX Stock Analyst Report BUY Maintain BUY 0.960 Same 0.960



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