The analysts at UOB Kay Hian (UOBKH) and PhillipCapital have both kept their “buy” calls on Valuetronics BN2 at an unchanged target price of 78 cents and a raised target price of 78.5 cents from 76 cents previously, respectively.
For the 1HFY2025 ended Sept 30, the company reported a 10% y-o-y improved net profit of HK$91 million ($15.7 million), largely meeting UOBKH’s John Cheong and Heidi Mo’s expectations, making up 53% of their full-year forecast.
Meanwhile, revenue dipped 3% y-o-y to HK$862 million, as a result of weak demand from some existing industrial and commercial electronics (ICE) and consumer electronics (CE) customers. Gross profit improved 4% y-o-y to $145 million, while higher interest income of $30 million led to Valuetronics’ net margin expanding 1.3 percentage points (ppts) y-o-y.
Cheong and Mo write in their Nov 14 report: “Valuetronics' more diversified customer portfolio contributed to offsetting the soft demand from existing customers.”
The company’s CE revenue fell 18% y-o-y to HK$193 million, led by poorer demand in end markets for its legacy consumer lifestyle products. For ICE, revenue rose 2% y-o-y to HK$669 million as its new customer, a Canada-based network access solutions provider, contributed more significantly to offset weaker demand from its existing customers.
“Gross margin continued to improve for the fourth consecutive half-year period to 16.8%. This was driven by higher-margin new products, lower labour costs and manufacturing overheads from the depreciation of the RMB, and lower material costs from an improvement in the component supply chain, write the UOBKH analysts.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
Valuetronics has also entered into a 55:45 joint venture (JV) called Trio AI with Hong Kong graphics processing unit (GPU) and artificial intelligence (AI) solutions provider SinnetCloud Group.
Cheong and Mo note that Valuetronics will also enjoy additional income from leasing GPU servers and hardware to Trio AI over 60 months, at a rate of around HK$60 million that will cover the acquisition cost. Management has guided for Trio AI to start making positive contributions to revenue and profitability from FY2026.
The analysts add that Valuetronics’ Vietnam campus is strategically positioned to meet changing customer needs, as customers may wish to de-risk from China given the potentially higher US trade tariffs under Trump’s presidency.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
“As of end 1HFY2025, the Vietnam plant was operating at an around 40% utilisation rate. This excess capacity allows room for production ramp-up, whether for existing customers or to add more new customers,” writes Cheong and Mo.
The company has also maintained a robust free cash flow of HK$53 million in 1HFY2025, while net cash improved to HK$1.1 billion, equivalent to around 77% of its market cap.
“While its formal dividend policy dictates a 30% to 50% payout ratio, recall that FY2023 and FY2024 payout ratios were 68% and 64% respectively.”
Share price catalysts noted by Cheong and Mo include higher-than-expected dividends and potential mergers and acquisitions (M&A) as well as proactive management amid market challenges.
Meanwhile, PhillipCapital’s Chew notes that apart from networking products, the volume ramp from Valuetronics' three new customers still hinges on improving macro conditions and capital expenditure decisions.
“Network access is expanding as the customer takes share from an Asian competitor. Electronic tags in retail stores are held back by hesitancy about large capital expenditures. The cooling solutions for gaming PCs are dependent on new product launches, but a larger opportunity is in data centre solutions,” writes Chew.
He adds: “On the 55:45 AI joint venture with Sinnet Cloud, Valuetronics will spend around HK$222 million to purchase 1000 GPUs from Shanghai-based MetaX. These GPUs will be delivered by early 2025. Valuetronics will lease the GPUs to the joint venture.”
On this, the analyst notes that the potential revenue of GPU processing power as a service is US$11 million ($14.8 million) per annum.
As at 2.24 pm, shares in Valuetronics are trading flat at 63.5 cents.
