VALUETRONICS: Industrial & Commercial Electronics segment to grow at least 20% in FY15

RHB Research analyst: Jarick Seet (left)

We brought Valuetronics on a full-day roadshow yesterday to meet our institutional clients, with another planned tomorrow on the 25 of March 2015.

The feedback was generally positive and key concerns remain on whether the growth in the Industrial and Commercial Electronics (ICE) segment can exceed or make up for the slowdown from its Consumer Electronic (CE) segment, especially its LED business portion. 

Management has highlighted that they are expecting double digit growth YoY from its ICE segment in FY16 just from existing customers with new products/models. 

For the past 2 years, Valuetronics has gained at least 1 new customer each year that contributes to at least 3% of its revenue. 

We understand that they are constantly actively trying to get new customers on board and we believe that there might be one or two in the pipeline ahead, which will add on to their ICE growth. 

All-in-all ,we expect ICE to grow at least 20% in FY16. 

As its ICE segment yields much higher margins, we believe that it would cover up for any decline in its CE Segment and result in a better gross margin and NPAT for FY16, just like its current FY. 

We think that dividend for FY15 will be comparable to last year’s payout of HKD20cents and we can expect better dividends if they perform better than our FY15 estimates, which we believe will be highly likely from its robust production activities when we visited their factories in Shenzhen last week. 

We continue to think that Valuetronics who is just trading at around 2.5x FY16 ex cash P/E, coupled with a potential 8-9% dividend yield is a undervalued gem. Maintain BUY with DCF-based TP of SGD0.64.