Valuetronics - RHB Invest 2018-09-25: Minimal Flooding Impact

SGinvestors.io

VALUETRONICS HOLDINGS LIMITED SGX:BN2

Valuetronics - Minimal Flooding Impact

• Maintain BUY and DCF-based Target Price of SGD0.92, 33% upside.
• Management clarified that the flooding at its plant in China had caused minimal impact to operations. It has since resumed production of its consumer electronics products. Management would be implementing more overtime shifts to catch up on production.
• It also guided that < 10% of topline would likely be impacted by the recent USD200bn additional tariffs.
• We note that the recent correction has placed Valuetronics at an attractive valuation – of just 7.9x F19F P/E, accompanied by a 6.3% yield.

Production resumes after power outage solved.

• After the flash flood on 17 Sep 2018, Valuetronics’ Danshui plant resumed operations after local power was restored on 21 Sep. We understand that the finished goods and machines, which were located at the higher floors, were not impacted by the flood – only the raw materials were damaged. However, management has already procured new raw materials and implemented more overtime shifts to catch up with the production delay caused by the flash flood.
• It also guided to have full insurance coverage on inventory. As such, we maintain our FY19F EPS forecast with no changes.

~ SGinvestors.io ~ Where SG investors share

Looking into ASEAN – additional tariffs to have minimal impact.

• Management guided that the current delivery arrangement with customers is based on a free on board (FOB) agreement, where Valuetronics’ responsibility of the goods is only until the pre-agreed port of departure. After that, all responsibilities, whether goods are damaged etc, would belong to the customer. As a result, the customer bears the tariffs. However, the company is likely to give a discount out of goodwill, and to maintain a good relationship with customers. ~ S G investors . io ~ Where SG investors share
• As a whole, management guided for < 10% of revenue to be affected by the additional USD200bn tariffs.

Dividends continue to be attractive – FY19F (Mar) yield of 6.3%.

• We expect management to continue rewarding shareholders with higher dividends, especially when performance improves.
• A total DPS of HKD0.27 has been declared for FY18, and we expect more dividends to be paid out in FY19 with a higher payout ratio due to the strong balance sheet. We are projecting an attractive FY19 dividend yield of 6.3%. ~ S G investors . io ~ Where SG investors share.

Fundamentals intact, a buying opportunity.

• We expect growth to continue in FY19 due to healthy growth drivers of the industrial and commercial electronics (ICE) and automotive segments.
• Maintain BUY, as we believe Valuetronics’ fundamentals and growth drivers will remain intact, coupled with the attractive FY19F dividend yield of 6.3%.
• Key risks include economic slowdown, forex risks, and raw material price fluctuations.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-09-25

SGX Stock Analyst Report BUY Maintain BUY 0.920 Same 0.920