Excerpts from analyst's report
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LED’s importance has shrunk, so has its drag Valuetronics’ lighting revenue remains soft.
We estimate that in FY3/15, LED revenue declined 21% YoY, contributing about 30% to the total and 49% to its Consumer Electronics revenue. Operatingprofit contribution is estimated at HKD17m or 10% of the total, due to a low margin of 2.3%. We forecast that LED revenue will decline 10-15% YoY pa in FY3/16-18. Given modest contributions, LED’s drag on earnings should also ease.
New customers expected in both segments
Management is confident of acquiring new customers in both its Consumer and Industrial segments. It has been very selective in choosing new customers, as it aims to be their sole strategic supplier. It expects to add at least one Industrial customer this year. We prudently forecast that Industrial revenue will grow 12% YoY in FY3/16-18, a slowdown from last year’s 23% as two customers have completed their migration of production to Valuetronics’ facilities.
Upgrade to BUY with new TP of SGD0.62
We raise our FY3/16-17 EPS by 5-11%. We benchmark Valuetronics’ forward PER to a group of small and mid-sized contract manufacturers, before adding back cash. We upgrade it to BUY with a new TP of SGD0.62 from SGD0.25. This is now based on 9.1x FY17 PER. Our previous TP was based on 4.4x FY16. Cash per share is SGD0.22. We expect yields to stay high at 7-8% in FY3/16-18.
Full report here.
