[FIDES ASSETS: VALUETRONICS – SGX]
6th June 2019
Action: BUY for VALUETRONICS (BN2.SI) listed on SGX
Valuetronics Holdings Ltd. offers original equipment manufacturing and original design manufacturing services. The Company serves customers in the telecommunications, industrial, commercial electronic products, and consumer electronic products industries (as per Bloomberg). VALUETRONICS has an existing market capital of SGD$265m. As of today, the 52-week high is at SGD$0.790, and 52-week low of SGD$0.585. The current share price is SGD$0.610.
Target price: SGD$0.790
Upside: +22.8% close approx.)
2019’s net profit met market’s expectations and consensus. Although it was a decline of 2.6% year-on-year (close approx.), it was mainly caused by the weaker cost effective compartments and increased operating expenses. This was partially offset by the booming growth in the interest, commission, and extras (ICE) segments.
Valuetronic’s sales had a growth of 5.4% year-on-year which is mainly driven by a higher marginal growth of industrial and commercial electronics segment, while net profit made a decline as mentioned earlier, this was attributed to increased selling and administrative expenses. It is also reported that consumer sales has fallen, however this is offset by the strong revenue growth from the ICE segment.
Cash Flow Position
One of they key factors we have taken into consideration is the balance sheet’s strength of the Company. Net cash position is at SGD$174m from SGD$134.4m (close approx), which is equivalent to more than 60% of it’s market capital. Additionally, the ICE segment has also 59% of the total profits from 51% in 2018.
To help cushion the uncertainties created by continuing trade tensions, Valuetronics has also made plans to diversify their manufacturing foundations in Vietnam. Mass production for shipments from Vietnam to US will take place once their customer qualifies for the initial setup, which should be completed by end-June 2019. The Company has stated that this arrangement will help provide an alternative solution to customers affected by the trade war.
With a huge war chest of SGD$174m, which is equivalent to more than 60% of its own market capital, this could poise Valuetronics for expansion aggressively.
Key risks and near-term outlook for the Company includes higher-than-expected loss of business due to the trade-war and higher-than-expected decline in earnings.
Fides Assets’ Recommendation
Therefore, our opinion is of Valuetronics is one of BUY with a target price of SGD$0.790. This objective is highly likely met to key factors such as increase sales in the automobile and IOT sectors, higher-than-expected dividends, or the potential of M&As.
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*** This report is neither an offer nor the solicitation of an offer to sell or purchase any investment. Comments are based on information obtained from sources believed to be reliable but Fides Assets makes no representation and accepts no responsibility or liability as to its completeness or accuracy.