Valuetronics - Still undervalued even after factoring pessimistic scenario. Upgrade to BUY

Date: 
2014-11-07
Firm: 
Phillip Securities
Stock: 
Valuetronics
Price Target: 
0.495
Price Call: 
BUY
Last Price: 
0.64
Upside/Downside: 
-0.145 (22.66%)
  • 2QFY15 Results were stable, what’s the fuss all about?
  • Valuetronics results were overall acceptable, with Revenue coming in at HK$627.6m (-0.7%y-y, +0.2%q-q) leading us to believe recent share price weakness is probably overdone.
  • ICE revenue increased 24.9%y-y to HK$225m, due to increased demand. Albeit down 7%q-q, ICE revenue looks to continue to improvement for the rest of the FY due to improving US manufacturing sentiment.
  • CE revenue decreased 10.9%y-y to HK$402m mainly due to demand slowdown, but actually increased 5%q -q. While there are structural headwinds to contend with regarding the LED business, a sudden drop in business is pure speculation at this point.
  • Gross profit decreased only by 2.4%y-y to HK$82m (up 2.2%q-q) and GP margins remained stable at 13.1%.
  • Net profit declined 8.4%y-y and 6.8%q-q to HK$36.3m (Q2 FY2014: HK$39.6m), within the low side of expectations.

After recent price falls off the highs, its undervalued again even on the most pessimistic of scenarios!

For perspective, if we assume that the rest of the year has zero earnings growth and Q3 and Q4 earnings are the same as Q2. This implies a FY15 net income of HK$142.8m, which is only a 3-4% drop from FY14. This is actually close to our estimate of flat growth this year.

However, just to increase the margin of safety and be even more conservative to account for potential higher-than-expected CE depreciation rate, we factor in the case where CE revenue drops by -20% for 2H15, and gross margins drop by -12% from FY14’s gross margin of 9.7%. This leads to FY15 CE revenue and gross profit contraction of -11% and -20% respectively. Coupled with a reasonable ~+20% FY15/FY14 ICE growth rate, this filters down to a FY15/FY14 net income contraction to -13%.

To account for the higher variance of potential upside and downside for ICE and CE respectively post FY15, we make our valuation even more demanding, pegging target price to 7x FY15 PE (slightly lower than 8x peer average) as we wait for the clarity on the CE segment. This implies a valuation of $0.40 based on earnings alone. A future rerate is possible when the ICE segment takes up more of the percentage of earnings being higher margin and more diversified.

Taken together and adding 11 SG cents of idle net cash (60% of net cash), and accounting for all possible dilution of options, we arrive at a reasonable target price of $0.495. Upgrade to BUY.

Source: Phillip Securities Research - 7 Nov 2014

Discussions
Be the first to like this. Showing 5 of 5 comments

sentimentrader

watching this for next week earnings

2015-02-05 16:39

albertlaw

Sentimentrader..seems you are right on target..

Not very bad the CE drop made up by IE and new major customer added may bring more opportunities..the Maybank analyst hve to eat her words

http://infopub.sgx.com/FileOpen/VHL%...3:fest30::240:

2015-02-10 23:29

albertlaw

I believe after its full year results(FYE 31 March 2015) Valuetronics will cross 50cts again

MAINBOARD-LISTED Valuetronics - a design and manufacturing partner for brands in the consumer electronics (CE) and industrial and commercial electronics (ICE) sectors - on Tuesday posted a 10.3 per cent increase in third-quarter net profit to HK$39.2 million (S$6.85 million), up from HK$35.5 million a year ago.

Revenue rose 3.4 per cent year-on-year to HK$596.2 million, due mainly to the increase in demand from some of its existing ICE customers and contribution from a new ICE customer, said the company.

As a result, its ICE revenue increased by 23.0 per cent to HK$235.0 million for the quarter, up from HK$191.1 million a year ago.

Valuetronics' CE revenue, however, decreased by some 6.4 per cent to HK$361.2 million from HK$385.7 million a year ago, due mainly to the slowdown in demand from some of its CE customers, said the group.

2015-02-11 09:31

albertlaw

Valuetronics started at "buy", 64-cent target by OSK DMG

By Frankie Ho / theedgemarkets.com | March 2, 2015 : 9:33 AM MYT
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SINGAPORE (March 2): OSK DMG has started coverage on Valuetronics with a "buy" rating and 64-cent price target.

The maker of consumer and industrial electronic products is "substantially undervalued", with its net cash representing 56% of its current market value and the stock trading at a "bargain" of 2.5 times projected 2016 earnings excluding cash, according to OSK DMG analysts Jarick Seet and Terence Wong.

"With its strong balance sheet and a business generating a substantial amount of positive free cash flow, we find that the company has been deeply misunderstood and undervalued by the market," they wrote in a note today.

When its main customer Phillips said last September it would divest its lighting business, the market believed the conglomerate would shut down or scale down its lightning business. That sparked a major sell-off on Valuetronics' shares.

In January this year, Phillips said it would sell the business via an IPO in 2016.

"If the IPO is successful, this would be a big positive and a significant fundamental change for Valuetronics’ business prospects – and could erase the initial worries of lower contributions from Phillips," the analysts said.

"We expect orders to increase from the soon-to-be-listed lighting division and margins to increase for Valuetronics’ consumer electronics division from FY16."

Another attraction of Valuetronics is its high dividend yield, they said, noting that the company has set a formal dividend payout ratio of 30% to 50% as of last year.

"We expect Valuetronics to consistently pay out above 40% of its net profit after tax going forward and potentially a special dividend if it manages to do well, like in FY14.

"This would result in a potential dividend yield range of 8%-9%

2015-03-02 15:32

albertlaw

HSBC bought more shares on 29th May..ie CEO Tse Chong Hin bought again



579,600 shares were bought into HSBC Global Investment Funds on 29 May 2015. HSBC Investment Funds
(Luxembourg) S.A. (" HIFL" ) is appointed as the Management Company of the funds. HIFL thus has deemed
interest over the shares.

( Date: 02-Jun-2015 22:43) Posted:



Tse Chong Hin the CEO bought on 28may..good sign

568,200 shares were purchased on 28 May 2015 are held under the funds:
HSBC Global Investment Funds - Asia Ex Japan Equity Smaller Companies Fund [18,644,600 shares (4.9755%)]
HSBC Funds - HSBC Asia ex-Japan Smaller Companies Equity Fund [382,000 shares (0.10%)]

HSBC Global Asset Management (Hong Kong) Limited (" AMHK" ) is the discretionary fund manager and
manage the investment for the two funds.

AMHK thus have deemed interest over the shares

2015-06-04 23:30

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