VALUETRONICS HOLDINGS LIMITED (SGX:BN2)
Valuetronics - Ongoing Trade War Unfavourable
- Stay NEUTRAL, new SGD0.67 DCF-based Target Price from SGD0.78, 10% upside.
- The ongoing US-China trade war will negatively impact VALUETRONICS (SGX:BN2)’s earnings and margin growth, as customers facing higher tariffs are likely to ask for further cost-downs or delay product launches.
- We cut FY20-21F (Mar) PATMI by 7-9%, which leads to a lower Target Price. We maintain our call until there is further clarity on trade war implications.
Trade war may weigh down on margins and profitability.
- As Valuetronics’ factories are all in China, we think the ongoing trade war and increase in tariffs will continue to dampen the company’s outlook. Its customers that face higher tariffs may likely request further costs-downs from the whole supply chain, as well as even delay product launches – which will weigh on its margins and profitability.
Missing out on US orders for new-generation smart lighting.
- Management said Valuetronics has secured manufacturing orders for smart lighting products for the rest of the world, excluding the US.
- We understand that US orders comprise over 50% of the company’s smart lightning orders. This is quite significant, as smart lighting accounted for 10-15% of its topline as of 9M19. As a result, we expect revenue to be impacted by 9-11% from FY20 onwards.
- On consumer and household appliances, management continues to see stable inflation-adjusted growth in its toothbrush and shaver segments.
- Management is keen to continue rewarding shareholders with respectable dividends, on its strong net cash position and cash flow generation. As of 1H19, an interim DPS of HKD0.05 has been declared. See Valuetronics' dividend history.
- Key downside risks are an economic slowdown, FX risks, raw material prices increasing, and further earnings downside if trade war escalates. The inverse of such conditions present key upside risks.
Jarick Seet
RHB Securities Research
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Lee Cai Ling
RHB Invest
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https://www.rhbinvest.com.sg/
2019-05-27
SGX Stock
Analyst Report
0.67
DOWN
0.780
