SINGAPORE (May 27): RHB Research is “neutral” on Valuetronics with lower 67 cents DCF-based target price given the ongoing US-China trade war will hit the latter’s earnings and margin growth.
As Valuetronics’ factories are all in China, RHB says the ongoing trade war and increase in tariffs will continue to dampen the company’s outlook.
See: Valuetronics posts 3Q earnings up by 2.6% to $10.3 mil despite dip in revenue
“Customers who face higher tariffs may request further costs reduction from the whole supply chain, as well as even delay product launches – which will weigh on its margins and profitability,” says lead analyst Seet in a Monday report.
Management says Valuetronics has secured manufacturing orders for smart lighting products for the rest of the world, excluding the US.
RHB understands that US orders comprise over 50% of the company’s smart lightning orders. This is quite significant, as smart lighting accounted for 10-15% of its topline as of 9M19.
“As a result, we expect revenue to be impacted by 9-11% from FY20 onwards. On consumer and household appliances, management continues to see stable inflation-adjusted growth in its toothbrush and shaver segments,” says Seet.
On this, RHB is lowering margin assumptions for both its consumer electronics (CE) and industrial and commercial electronics (ICE) divisions.
Due to this, the house’s FY20-21F PATMI are also reduced by 7 and 9%, resulting in a lower DCF-based target price of 67 cents.
“We remain ‘neutral’ on the stock, while awaiting more clarity on the further impact of the trade tariffs on its outlook,” says Seet.
As at 12.04pm, shares in Valuetronics are down 0.5 cent at 60 cents.
