SINGAPORE (Aug 11): Maybank Kim Eng is crediting new products like wireless smart bulbs and in-vehicle wireless modules for turning Valuetronics around.
Valuetronics provides design capabilities and manufacturing flexibility to provide electronic manufacturing services (EMS) solutions for varying complexities and produce mixes.
In the past three years, revenue have swung back to y-o-y growth from declines caused by its exit from an increasingly commoditised LED consumer-lighting space, thanks to these products.
In an unrated report on Thursday, lead analyst Neel Sinha says Valuetronics’ management believes it has three competitive advantages over its mid-sized EMS peers.
These are its ability to provide early-stage manufacturing advice to customers; product design capabilities and flexible integration capabilities for higher-complexity, high-mix products.
“Valuetronics tries to capitalise on its strengths by targeting products in its customers’ portfolios that are in their early life cycles,” says Sinha, “That said, customer concentraiton is high, with the top four accounting for about 70% of its sales.”
In FY17, consumer electronics (CE) accounted for 43% of its sales in FY17. Industrial and commercial electronics (ICE) may up the balance 57%.
In CE, management believes IOT lighting is still in its early growth stage worldwide and infancy in Asia.
With ICE, it expects growth from new customers -- one potentially in FY18 -- and continued growth of in-car wireless connectivity/communcation modules.
“This is area with entry barriers from onerous certification and traceability requirements.
“M&A could be on the charts, backed by HK$808 million ($141 million) cash hoard.
Management could be interested in buying new technologies and/or a manufacturing footprint outside China.
“Based on FY18 consensus EPS of HK$0.415, Valuetronics trades at 11.3x forward P/E of 6.8x on an ex-cash basis, Singapore peers trade at 15.7x,” says Sinha, “Valuetronics has a 30-50% payout ratio dividend policy.”
Shares in Valuetronics are trading 3.5 cents lower at 86.5 cents.
