Despite beating consensus estimates for its FY2021 ended March earnings, analysts remain cautious on the outlook for Valuetronics Holdings, citing a challenging FY2022 ahead.
To that end, UOB Kay Hian, Maybank Kim Eng and DBS Group Research have kept their ‘hold’ ratings for the counter but with higher target prices of 66 cents, 60 cents and 60 cents respectively.
RHB Group Research kept its 'sell' call while also increasing its target price from 50 cents to 55 cents.
Meanwhile, CGS-CIMB Research has kept its ‘reduce’ call with a lower target price of 50.4 cents from 53 cents previously following a rollover in valuation to FY2023.
Analysts note that Valuetronics’s earnings of HK$187.1 million ($31.9 million) for the FY2021 were driven by the strong performance of its Industrial and Commercial Electronics (ICE) segment due to the logistics and e-commerce industry benefitting from the pandemic, as well as delayed switch over of an automotive customer to a new vendor in the US.ICE revenue increased 11.3% y-o-y to HK$1.6 billion.
In contrast, revenue from consumer electronics (CE) was affected by a customer’s switch to another supplier in ASEAN, as well as weaker end-market sales. CE revenue declined by 25.7% y-o-y to HK$2.3 billion.
SEE:CGS-CIMB downgrades Valuetronics to 'reduce' on escalating trade tensions and supply chain shifts
UOB Kay Hian analyst John Cheong notes that Valuetronics expects a hit in earnings for the FY2022 due to customers in the US switching to North American suppliers to avoid trade tariffs.
“The switching over by the group’s automobile customers to other suppliers was substantially completed in 4QFY2021. As such, the group expects the negative impact from this switchover to be reflected more significantly in FY2022,” he highlights. He also notes that the group is facing a global component shortage issue which may affect its ability to meet orders.
His higher target price of 66 cents from 55 cents previously incorporates raised FY2022-2023 earnings forecasts by 10% to reflect a smaller decline in revenue for FY2022, taking into account the better ICE performance. “Also, we introduce FY2024 earnings of HK$160m,” he adds.
Maybank Kim Eng’s Gene Lih Lai believes the worst of Valuetronics allocation losses could be over. He also points out that its Vietnam campus, which is currently under construction, will be important for courting new customers.
“With strong customer satisfaction and Valuetronics’ expansion in Vietnam, we think the worst of customer allocation losses could be over, and this is reflected in our increase of FY2022-2023 EPS,” they say. Their target price has been raised to 60 cents from 58 cents previously.
DBS analysts Wei Le Chung and Lee Keng Ling believe a turnaround is on the horizon. “We believe in holding on to Valuetronics due to its strong financial position and attractive valuation. In our view, the company will be at the cusp of turning around by end-FY2022 with the completion of its Vietnam plant and continued tailwinds from the logistics and e-commerce industries,” they say.
Their target price of 60 cents is pegged to 9.7 times (based on a four-year average P/E) FY2022 earnings. They also point out that Valuetronics is currently trading at a deep discount to peers, with 10.3 times FY2022 P/E compared to peer average of 17.6 times.
Meanwhile, CGS-CIMB’s Darren Ong and William Tng have kept their ‘reduce’ call against the backdrop of a “challenging operating environment in FY2022”.
Nonetheless, they expect Valuetronics’ strong net cash position of 44 cents per share as of end-FY2021 to help the group “cushion tailwinds ahead”.
Despite increasing his target price to reflect a higher net cash balance, RHB's Jarick Seet has also kept his 'sell' call, with the view that management will cut dividends to conserve cash while it weathers the tougher times ahead.
"With the uncertain and challenging outlook ahead, we consider that investors would benefit more if they make the switch to other stocks," he says.
Shares in Valuetronics closed 0.5 cents or 0.8% lower at 62 cents on June 1.
