Wong Hing Kwai, a substantial shareholder of Valuetronics, sold 10 million shares of the company last Friday, slashing his holding from 6.24% to 3.41%.
On 16 Aug, which is about four weeks ago, he had a 10.1% stake.
Why this hurried selling, asked someone in the audience after a corporate presentation by Valuetronics group financial controller, Tony Kwong.
Mr Kwong clarified that Wong Hing Kwai is not a director of the company but a consultant who is about 70 years old and planning to retire.
Despite the selling, and investor worries surrounding it, Valuetronics shares have roared to life. From 18.5 cents on Sept 28, it touched 26.5 cents yesterday for a 43% gain in just a fortnight.
Part of the re-rating could be due to the excellent 1Q2011 (ending June 30) results unveiled in mid-August. Valuetronics’ net profit after tax rose 435.2% to HK$28.9 million from HK$5.4 million in 1Q FY2010.
Increasingly too, the market is recognizing that Valuetronics has a new growth driver, which was unveiled in March this year. Valuetronics had clinched an exclusive licensing agreement to not just design and manufacture, but also market and distribute products.
Part of its work will include working with distributors to sell to large retail chains, and to work with logistic and call centre partners.
“We are no longer a traditional contract manufacturer,’ he said.
The products covered to date are portable air purifiers, portable heaters and portable electric fans under the Whirlpool, Maytag and Amana brands for the North American market.
This new business will have marginal contributions of revenue and gross profit margin in the current financial year ended March 2011, but will turn significant from FY2012, said Mr Kwong.
Valuetronics is striving to expand such licensing agreements to cover other home comfort products.
Mr Kwong said that Valuetronics’ growth in this business segment is not limited by its production capacity as it can source from other contract manufacturers which can meet the safety and other quality criteria set by its principals.
Whirpool, an American brand, is but an example of Valuetronics’ dependence on the US market, which accounted for 48% of its revenue in 1Q of this financial year.
Asked about the impact, if any, of the slowdown of the US economy, Mr Kwong said that based on orders on hand, ‘we don’t see any significant downturn in our US business.”
As for the impact of a weakening US dollar, he said it is also insignificant since the HK dollar, which is the reporting currency of the company, is pegged to the US dollar.
Regarding the seasonality of the business, 2Q is usually better than 1Q while 3Q declines because of the year-end holiday season and 4Q is the lowest.
On the downside, Valuetronics has to contend with a rise in raw material prices, an increase in the minimum wage, a shortage of labour and fluctuation in foreign exchange rates.
For CIMB's recent initiation report on Valuetronics: TREK 2000, VALUETRONICS: What analysts now say....