SINGAPORE (Apr 30): RHB maintains Valuetronics still presents a “buy” despite its recent selldown, saying its fundamentals remain intact, especially its Industrial & Commercial Electronics (ICE) and automotive segments.
Since Valuetronics’ Dutch MNC customer -- said to be Phillips -- reported a 1Q18 ended Sept earnings miss due to weak sales at its home lighting division, Valuetronics’ shares have slumped 25% since.
Weak earnings announced by its peers as well as soft sentiment in the electronics and semiconductor sector also contributed to the share price decline.
Despite Valuetronics' Dutch MNC customer* reporting a 1Q18 earnings miss due to weak sales in its home lighting division, its management* has guided that the positive trend for smart home lighting remains intact and expects sales to normalise and catch up in 2H18.
In a Monday report, analyst Jarick Seet says he expects Valuetronics to gain more orders for third-generation LED products given its position as one of only two suppliers for the second-generation smart light LEDs.
“However, we think the selldown is overdone as fundamentals and growth remain intact,” adds Seet.
RHB is however lowering its target price to 96 cents from $1.05, based on lower FY19 earnings of 10 times to reflect the weaker sentiment globally.
Valuetronics’ ICE segment will likely continue to grow, due to higher demand from some of its existing customers, as well as new projects involving in-car connectivity modules used in the automotive industry.
Looking ahead, Seet expects the ramp-up of these products to continue in FY18, and expect ICE revenue growth to be around 10-12% per year.
The strong growth in Valuetronics’ CE segment in 3Q18 ended March was mainly driven by smart light-emitting diode (LED) lighting products, with Internet of Things (IoT) features.
As of 3Q18, Valuetronics had a healthy balance sheet with zero debt and net cash of HK$640.4 million ($108 million).
“We expect management to increase its dividend payout for the year, with our total dividend yield forecast of FY18 of 6.6%, which became more attractive after the share price decline,” says Seet.
As at 12.05am, shares in Valuetronics are up 9 cents at 77 cents.
*The Edge Singapore wishes to clarify a previous error made in our story that the management guidance given refers to that of Valuetronics' Dutch MNC customer, and not Valuetronics as reported. We apologise for the error.
