Valuetronics - Maybank Kim Eng 2020-03-29: Approaching Crisis Valuations

VALUETRONICS HOLDINGS LIMITED (SGX:BN2)

Valuetronics - Approaching Crisis Valuations

We cut FY20-22E earnings by 2-23% as we factor in additional supply chain issues in FY20E, and demand uncertainty in FY21E.
While we see risks to our forecasts amid poor visibility, we believe most risks are priced in as Valuetronics (SGX:BN2) is trading at only 1.2x FY20E ex-cash P/E (near 1SD below long-term mean), not far from crisis valuations during the GFC and 2013 of -0.4x and -0.2x respectively.
Our ROE-g/COE-g Target Price falls to SGD0.82 as we roll forward to 1.5x FY21E P/B from 1.9x FY20E. BUY.

Valuetronics updated that as at 23-Mar, 80% of its employees in China has resumed work. However, Valuetronics expects business sentiment to be uncertain in major markets such as US, Europe and China. See Valuetronics Announcements.
Valuetronics noted that since last week, some suppliers and end-customers in various countries have temporarily shut down to halt the spread of Covid-19. We note that customers are beginning to turn cautious. For instance, Valuetronics’s automotive customer has withdrawn its guidance amid increasing supply-chain and end-demand uncertainties on 20-Mar.

While Valuetronics has the balance sheet means to maintain HKD0.25 DPS in FY20-21, we factored a lower HKD0.22-0.23, pegged to 63% pay-out ratio, which is the FY16 high. Valuetronics expects its Vietnam expansion plans to be fully funded via cash.
Customers’ liquidity, leverage and coverage ratios also appear healthy. On 20-Mar, its automotive customer withdrew the remaining USD1.4b of its revolving credit facility to boost liquidity levels amid current uncertainties.

Valuetronics is currently trading on 8% FY20E dividend yield, around its long-term mean. For comparison, yield peaked at around 17% during the GFC.
See Valuetronics Share Price; Valuetronics Target Price; Valuetronics Analyst Reports; Valuetronics Dividend History; Valuetronics Announcements; Valuetronics Latest News.
Valuetronics is currently trading at 1.1x FY20E ex-cash P/E, near 1SD below its long-term mean. Click view full report button below to see peer comparison table. Through its listing history, forward ex-cash P/E has only been negative twice, during GFC (trough: -0.4x) and in 2013 when Valuetronics was turning around from a difficult year which was further weighed by non-recurring costs of terminating a licensing business (-0.2x).