RHB Group Research analyst Jarick Seet has upgraded his recommendation on Valuetronics to “neutral” from “sell” after deeming the company’s worst times to be over.
Seet has also upped his target price to 53 cents from 51 cents previously.
In his June 8 report, Seet noted that Valuetronics had just come off an expectedly tough FY2022 ended March, with revenue and Patmi falling 11.1% and 39.3% y-o-y to HK$2.03 billion ($355.5 million) and HK$113.5 million respectively.
The lower figures were mainly due to the lower contribution from the industrial and commercial electronics (ICE) segment, higher component prices, as well as increased labour and operating costs.
ICE had declined in the FY2022 mainly due to a significant drop in sales from its automotive customer, which switched its production to another vendor in North America, while component shortages also affected the order fulfilment of certain customers.
“However, we believe all is not lost going forward as Valuetronics has been preparing for the trial production for newly acquired customers in this segment including a hardware provider customer for retail chain stores and a customer providing cooling solutions for high performance computing environments,” Seet writes. “These customers are expected to contribute positively in FY2023.”
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That said, the analyst sees Valuetronics’ consumer electronics (CE) segment continuing to decline in the FY2023 due to lower forecasts from customers and the component shortage issue.
That said, the company is still expected to see higher figures albeit offset by its CE segment as its ICE segment yields better margins and profitability.
Despite the buoyant outlook on the counter, Seet clarifies that he still expects certain persisting issues like supply chain and component shortages to continue.
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“But with a higher contribution from the higher margin ICE segment, Valuetronic’s outlook should be better than FY2022,” he stresses.
“In addition, despite the expected cut in dividend, management is actively doing share buybacks, which would help to support the share price and we believe the group will still reward shareholders with dividends due to the cash per share of 37 cents and its positive past track record,” he adds.
As at 11.25am, shares in Valuetronics are trading flat at 53 cents, or an FY2023 P/B of 0.9x and dividend yield of 5.5%.
