SINGAPORE (May 30): Analysts are staying positive on Valuetronics Holdings on the back of its Industrial and commercial electronics (ICE) and automotive segments, which are expected to continue to drive growth in FY19.
This comes after Valuetronics on May 25 announced that its FY18 earnings were 32.9% higher at HK$204.7 million ($35.1 million), compared to HK$154.1 million in FY17.
Revenue increased by 25.4% y-o-y to HK$2.85 billion in FY18, largely attributed to 13.0% higher revenue contribution from its Industrial and Commercial Electronics (ICE), mainly due to increase in demand.
FY18 gross profit rose 21.3% to HK$414.6 million, from HK$341.7 million a year ago.
The group also recommended a final dividend of 15 HK cents and a special dividend of 5 HK cents for the full year ended Mar 31. Together with an interim dividend of 7 HK cents paid earlier, this brings the total dividend for FY18 to 27 HK cents – some 35% higher than a year ago.
The group’s FY18 total dividend translates into a payout ratio of 56% and a dividend yield of 5.8%.
Following the results announcement, RHB Research is reiterating its “buy” call on Valuetronics with a target price of 92 cents.
In a Monday report, lead analyst Jarick Seet expects the ICE segment to grow at a high single to low double-digit level y-o-y, of about 8-10%.
According to Seet, the group’s automotive products are expected to remain as the primary driver for ICE growth with increasing demands for in-car connectivity. And the analyst expects the automotive segment to continue growing at high double-digit growth y-o-y, with margins maintaining due to increased volumes and efficiency.
Meanwhile, the group’s sensing and printer segments are also likely to continue to grow at high sing-digit growth y-o-y, while its telecoms segment is expected to weaken as its customers are facing lower demand for their products.
On the other hand, the group’s revenue from Consumer Electronics (CE) is facing pressure from its smart lighting segment, due to weak demand and lower orders from its major customer in 4Q18. Its customers are expecting demand to only pick up by 2H19.
“We are projecting some margin pressure as well as weaker demand y-o-y in FY19,” says Seet.
Similarly, CGS-CIMB Research is maintaining its “add” recommendation on Valuetronics with a fair value estimate of 95 cents.
In a Monday report, analyst Ngoh Yi Sin sees a mixed outlook for the group’s CE segment.
The analyst expects that its consumer lifestyle products, particularly electric toothbrushes, which were one of its key outperformers in FY18, to offset possible revenue decline from its wireless lighting, which could undergo some destocking over one to two quarters.
“The short order visibility for smart lighting (2-3 weeks) could pose near-term uncertainty,” says Ngoh.
Maybank is also keeping its “buy” call on Valuetronics with a target price of $1.15.
The group’s smart-lighting customer remains confident of the structural prospects of its market-leading products. It is targeting a double-digit growth in 2H18 and in the coming years, despite an expected weak 2Q18. This will make an acceptable ROI and meet expected end use demand growth.
The group could benefit from the new releases that this customer is planning, given their strong and longstanding relationship.
In a Tuesday report, analyst Lai Gene Lih says, “Broadly speaking, business continues apace for Valuetronics’ customers, despite macroeconomic uncertainties. Extended procurement lead times for various components are expected to persist into FY19E, and Valuetronics notes that customers are warming up to the idea of building safety stock to ensure desirable levels of production can be achieved.”
As at 10.35am, shares of Valuetronics are trading 3 cents lower at 76.5 cents, or 1.57 times FY19 book with a dividend yield of 7.0%.
