SINGAPORE (Nov 13): Analysts from RHB Research, Maybank Kim Eng Research and UOB Kay Hian are maintaining their “buy” recommendations on Valuetronics Holdings. However, all three brokerages are also lowering their target prices for the electronics manufacturer.
This comes as Valuetronics reported a 12.8% decline in earnings to HK$44.3 million ($7.8 million) for the 2Q19 ended September, falling from HK$50.8 million a year ago.
2Q19 revenue slipped 1.3% to HK$716.2 million, dragged by a 22.0% decline in Consumer Electronics (CE) revenue to HK$296.9 million. This was the result of a slowdown in demand from CE customer in the smart lighting business, as well as production disruptions in late September caused by the flash flooding from Super Typhoon Mangkhut.
This was partially mitigated by an increase in demand from some customers in the Industrial and Commercial Electronics (ICE) segment, which saw revenue increase by 21.4% to HK$419.3 million in 2Q19.
“Excluding [a one-off flood provision], net profit would have increased 14% y-o-y,” says UOB analyst John Cheong in a Tuesday report, noting that Valuetronics’ “robust results” in 2Q were “masked” by the one-off provision.
However, the brokerage is cutting its target price to 87 cents, from 96 cents previously. The lower target is as a result of UOB lowering its FY19 and FY20 EPS forecasts by 5% and 2%, respectively, to include provision from flood.
“Business outlook remains positive… especially for the higher-margin ICE segment as it continues to see more traction from the automobile customers,” Cheong says.
The way RHB analyst Jarick Seet sees it, Valuetronics continues to offer an “attractive” dividend yield.
“We expect management to continue rewarding shareholders with higher dividends, especially when the company performs better,” Seet says. “A total of 27 HK cents dividend per share has also been declared for FY18 and we expect a higher payout ratio in FY19 due to the strong balance sheet, for a 6% yield.”
However, the analyst warns that trade tariffs could result in a murky outlook for Valuetronics.
“A worsening trade war will likely negatively impact the company since 20% of revenues are exposed to tariffs,” Seet says. “Due to a weakening sentiment caused by trade war and a slowdown of the sector globally, we lower our FY19F and 20F PATMI by 7% and 5%, to include the one-off provision, resulting in a lower target price of 82 cents, pegged to 10x FY19F P/E.”
Similarly, Maybank has lowered its target price on Valuetronics to 96 cents, from $1.05 previously.
“While management’s tone suggests business momentum is intact for FY19E, we conservatively shave FY19-21E core EPS by 4-7% as smart-lighting recovery could fall short of our expectation, and other businesses could slow if the trade war escalates,” analyst Lai Gene Lih says in a Tuesday report.
As at 12.48pm, shares in Valuetronics are trading half a cent lower at 67.5 cents. According to Maybank valuations, this implies an estimated price-to-earnings ratio of 8.5 times and a dividend yield of 6.3% for FY19.
