SINGAPORE (Feb 13): CIMB is reiterating its “add” call on Valuetronics Holdings with an unchanged target price of $1.10, which is pegged to 11 times CY19 forward earnings and implies 4% FY18-20 dividend yield, after the tech manufacturer last Friday posted its latest set of quarterly results.
See: Valuetronics' 3Q earnings jump 35.7% to $9.8 mil on higher revenue
In a Monday report, analyst Ngoh Yi Sin notes another record quarter in 3Q for the group with a positive surprise coming from double-digit y-o-y and q-o-q sales growth in the industrial and commercial electronics (ICE) segment.
With the start of mass production for certain products of Valuetronic’s second automotive customer, the analyst believes this will help contribute to earnings growth from FY19F onwards – with the potential to benefit from the group’s OEM customer’s recent spin-off in the form of new product types.
Another segment, consumer electronics (CE), provides further catalysts for the group given its significant exposure to the consumer lifestyle and lighting divisions of a Dutch MNC.
“While sales of its 2nd generation series of wireless lighting continue to perform well, its 3rd and 4th generation series are already in the pipeline, with added features and enhancements. If Valuetronics succeeds in winning these new projects from the Dutch MNC, the rising market penetration of these new products could possibly give the company another leg up,” adds Ngoh.
UOB however maintains its “hold” call on the stock with a lower target price of 95 cents from 99 cents previously on lower forex assumptions, while highlighting that the company continues to see minor supply chain challenges.
“Valuetronics has guided that barring unforeseen circumstances, it expects to achieve profit growth for FY18. However, supply chain challenges continue to persist as the price of raw materials fluctuate, leading to extended procurement lead times. Valuetronics’ factories will shut down for two weeks during the Chinese New Year festivities,” observes analyst Nicholas Leow in a Tuesday report.
Nonetheless, he does not think these issues will impact the group significantly, and acknowledges the group’s healthy utilisation rates with further upside on higher order volumes or new order wins.
“Management is still in discussions with local authorities regarding the possibility of extending the Dan Shui plant lease which expires in 2021. We believe that should the lease of the plant not be extended, Valuetronics could either build another manufacturing facility in another location or even possibly expand the Daya Bay plant which we expect to cost HK$100-150 million,” says Leow.
As at 10:28am, shares in Valuetronics are trading at 1 cent higher at 93 cents, or 2.20 times 2019F book according to UOB estimates.
