Valuetronics - Maybank Kim Eng 2019-01-07: Dividend Yields Intact


Valuetronics - Dividend Yields Intact

Still attractive yields despite EPS cuts

  • Maintain BUY, though with a lower ROE-g/COE-g Target Price of SGD0.90.
  • We cut FY19-21E earnings by 3-6%, as a slowing of consumer sentiment and/ or an escalation of the trade war could soften business momentum. We also increase COE from 10.2% to 10.7% to factor in the stock’s increased volatility.
  • Still, we favour VALUETRONICS HOLDINGS LIMITED (SGX:BN2) robust prospects at its automotive, printing and consumer lifestyle businesses, as well as 6-7% dividend yield.

Some vulnerabilities emerging…

  • We see risks that increased macro uncertainties could affect its ongoing smart-lighting recovery. Aside, some 20% of Valuetronics’ revenue is exposed to supply chains hit by tariffs. Orders could slow down if the US decides to increase tariffs from 10% to 25%. Due to this, we cut FY19-21E EPS by 3-6%.

… but most parts of its business remain solid

  • Its automotive, printing and consumer lifestyle businesses, which account for 70% of its revenue, still appear solid. We see secular prospects for automotive connectivity and smart-lighting.
  • We believe Valuetronics can maintain its decade-long double-digit ROEs through healthy pricing, cost control and disciplined capex.

Earnings Revisions

  • We cut FY19-21E EPS by 3-6%, as we are concerned that heightening macro uncertainty could temper the pace of the on-going smart lighting recovery. We pre-emptively factor in lower sales if tariffs are raised to 25% from 10%, in the event of an escalation of the US-China trade war. Although 20% of Valuetronics’ revenue is from supply chains affected by tariffs, its recent business momentum has been healthy.


  • Our Target Price is now based on 1.9x FY19E P/BV, from 2.1x previously. This is based on an FY19-21E average adjusted ROE of 18.8% and LTG of 2%. We increase our COE as we see increased volatility for the stock. We expect FY19-21E FCF/share of HKD35-53cts to fund DPS of HKD22-28cts for yields of 6-7%. While Valuetronics has signalled M&A intentions in recent years, we believe it can fund any acquisition with its strong cash of HKD800m which forms 48% of its market cap.
  • Our DPS forecasts are intact as we believe its DPS should be comfortably funded by strong cash flows and a robust balance sheet.

Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-01-07
SGX Stock Analyst Report BUY MAINTAIN BUY 0.90 DOWN 0.960