SINGAPORE (Mar 11): Integrated electronics manufacturing services provider Valuetronics has seen its share price tumble by some 25% since the Covid-19 outbreak.
This hardly came as a surprise to market watchers, as the group’s two factories in Huizhou, China encountered revenue losses and supply chain disruptions.
The two factories account for more than 90% of the company’s production, save for a leased site in Vietnam which constituted less than 10%.
In a Tuesday report, CGS-CIMB Research analyst Ngoh Yi Sin notes that although operations have since resumed, the factories’ production levels have yet to hit pre-CNY levels due to the shutdown of cities and limited transportation facilities.
The management, too, has braced itself for lower 2HFY2020 revenue on the back of disruption to originally planned delivery schedules.
Segmentally, Ngoh has detected a mixed near-term outlook for businesses of Valuetronics.
“Its consumer lifestyle and smart lighting businesses, which formed 30% and less than 10% of 2QFY2020 topline respectively, continue to see tailwinds from increasing market penetration and new product launches at multiple price points,” says Ngoh.
“Covid-19 uncertainty has, however, impacted consumer spending, causing a decline in China online sales for grooming products,” she adds.
The group’s industrial and commercial electronics (ICE) segment is likely to benefit from higher telecommunication and printer demand, which constitute some 30% of the group’s revenue. This, according to Ngoh, could mitigate the impact of lower sales from the auto segment.
Yet, Ngoh identifies strengths in the counter which investors should pay attention to. For instance, Valuetronics boasts a “robust” balance sheet with zero debt, and HK$1.03 billion ($184.3 million).
Valuetronics also has a consistent track record of positive free cashflow generation, which the brokerage thinks could help buffer the group against macroeconomic challenges.
“We expect the group to maintain its 25 HKcts DPS over FY2020-2022F, translating into 7.5% dividend yield. This, coupled with inexpensive valuation of 7.7x FY21F P/E, could also make it an attractive M&A target, in our view,” says Ngoh.
Ngoh adds that the management is not intending to tap on borrowings for its expansion into Vietnam, which could amount to some HK$170 million inclusive of land use rights.
CGS-CIMB is reiterating its “hold” call on Valuetronics, with a target price of 62 cents, representing an upside of 5.9% for the stock.
As at 4.42pm, shares in Valuetronics are trading one cent lower, or 1.65% down, at 59.5 cents.
