SINGAPORE (Aug 16): RHB is maintaining its “hold” call on Valuetronics with 93 cents target price as the integrated electronic manufacturing services provider has been qualified by another automaker.
This means there would be more projects scheduled to be launched later this year that involve its industrial and commercial electronics (ICE) segment.
“This, coupled with the stronger-than-expected growth of its CE unit (driven by smart LED lighting with IoT features) leads us to upgrade our FY18F NPAT by 14.5%. As such, our DCF-based target price rises to 93 cents,” says RHB Jarick Seet analyst in a Wednesday report.
At its Tuesday results briefing, management says it aims to utilise the majority of its HK$752.9 million cash pile for M&As.
Targets would be downstream players, or horizontal businesses that fit and synergise with its existing business — which now boasts of stronger fundamentals.
Meanwhile, investors can hold on to the stock for its attractive dividends yield of around 4.6%.
To be sure, Valuetronics has made a strong start to a year, driven by strong growth from both its consumer electronics (CE) and ICE segments.
In 1Q18 ended March, growth in the CE segment was mainly driven by smart light-emitting diode (LED) lighting products with Internet of Things (IoT) features. Management remains optimistic on the growth prospects of the smart LED lighting product, as IoT devices are becoming more popular.
Looking ahead, there are a few potential new projects in the pipeline for its industrial and commercial electronics (ICE) segment.
“During a visit to its factory a few months ago, we saw new machines that may be used for a new manufacturing line, created for a new product for its automotive segment,” says Seet.
Valuetronics will also launch a new product in the temperature-sensing area, while developing a new product with an existing customer at the same time.
“All in all, we expect its ICE segment to grow 15-20% y-o-y in FY18 – although we do expect margins to narrow slightly y-o-y in the same period,” adds Seet.
However, uncertainty hangs over its Dan Shui factory. Valuetronics’ lease for its old factory in Dan Shui, China — which is mainly involved in CE manufacturing — will expire in 2020.
As management believes the probability of the lease being renewed is low, it has embarked on a relocation plan, and aims to move its manufacturing facility to another site.
“We expect this to incur capex of at least HK$100 million ($17.5 million),” says Seet, “The relocation process would take three years to complete, if it happens.”
As at 3.47pm, shares in Valuetronics are trading 3 cents higher at 99 cents.
