Analysts are upbeat on Valuetronics BN2 ’ prospects after the company’s earnings for the 1HFY2024 ended Sept 30stood above their expectations. For the six-month period, Valuetronics’s earnings came in at HK$82.1 million ($14.3 million), 42% higher y-o-y.
UOB Kay Hian analyst John Cheong has upgraded his call on the stock to “buy” as Valuetronics’ 1HFY2024 earnings made up 61% of his full-year estimates.
Though Cheong remains mixed on the company’s outlook amid the market uncertainties, he notes that it has four new “promising” customers, of which two will start contributing in the 2HFY2024.
To this end, Cheong has upped his earnings forecasts for the FY2024, FY2025 and FY2026 by 20%, 17% and 13% respectively after increasing his gross margin estimates by 2.6 percentage points to 15.6% for all three financial years (FYs). The increase in his margin estimates account for the better supply chain conditions, which have led to more favourable raw material price and reduced labour costs.
He has also increased his interest income estimates by around 100% to HK$52 million to HK$54 million to account for the more favourable interest rate and Valuetronics’ huge cash balance of HK$1.1 billion, which is equivalent to 90% of its market cap.
In addition to his call upgrade, Cheong has lifted his target price estimate to 72 cents from 56 cents previously. The new target price, which has factored in the potential strong demand from Valuetronics’ new customers, is pegged to 10.6 times of the company’s FY2024 P/E and 1 standard deviation (s.d.) above its historical P/E mean.
“Valuetronics is currently trading at only 1x FY2024 ex-cash P/E and offers an attractive FY2024 dividend yield of around 7.7%,” Cheong writes.
PhillipCapital analyst Paul Chew has kept his “buy” call on Valuetronics as the company’s earnings came in at 62% of his full-year estimates.
In his report, the analyst is positive on the company’s recovery in margins as well as its unprecedented dividend after its interim results. Meanwhile, the decline in Valuetronics’ revenue, which was mainly due to lower component prices, was a concern.
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However, the analyst is expecting to see a stronger set of numbers for the 2HFY2024 with revenue growth expected to come from Valuetronics’ new customers.
Margin expansion is expected to continue from a higher mix of industrial & commercial electronics (ICE) products, increased volumes and weak renminbi (RMB), says Chew.
Following Valuetronics’ 1HFY2024 results, Chew has also raised his earnings forecast for the FY2024 by 15%.
His target price, which was upped to 70 cents from 61 cents previously, is pegged to the industry valuation at 11x P/E one-year forward earnings.
“With the current cash hoard of HK$1.14 billion, around 90% of the market capitalisation is net cash. There is visibility of earnings growth over the next two years as Valuetronics’ four new customers ramp-up production. The company trades at a dividend yield of 6% and has an outstanding share buyback plan of HK$182 million (or approximately 58 million shares at [its] current share price),” says Chew.
As at 4.43pm, shares in Valuetronics are trading flat at 55 cents.
