Excerpts from analyst's report
UOB Kay Hian analyst: Nicholas Leow
|FY16 net profit fell 19.3% yoy to HK$120.4m as the mass-market low-margin LED business reached its end-of-life cycle. We raise our forecast to account for the potential double-digit growth in the automobile segment.
Valuetronics is trading at 7.8x FY18F PE (ex-cash: 2.7x) with a potential dividend yield of 7.5%. Maintain BUY with a higher target price of S$0.60.
• FY16 net profit fell 19.3% yoy to HK$120.4m, largely due to its exit from the mass market LED light bulbs segment. Revenue declined 19.6% yoy to HK$1,952.9m. The consumer electronics (CE) segment contributed 42.2% of total revenue, down from 60.6% in FY15.
Meanwhile, industrial and commercial electronics (ICE) sales rose from HK$956.3m in FY15 to HK$1,128.3m in FY16, mainly due to the increase in demand from ICE customers and the company adding a new customer in the automobile industry. We estimate the mass-market LED light bulbs segment contributed about HK$230m in FY16.
• Margins on the rise. The exit from the low-margin mass-market LED light bulb segment has resulted in an increase in gross margin to 15.2% in FY16 (FY15: 13.6%). Net margin rose 0.1ppt from 6.1% in FY15 to 6.2% in FY16.
• Cash is king. As of 31 Mar 16, net cash stood at S$0.32/share, up from S$0.24 in FY15. Net cash per share formed about 65% of the company’s market capitalisation. Including available-for-sale (AFS) financial assets, net cash per share would be S$0.35, or 72% of market capitalisation.
AFS financial assets comprise mostly US$ investment-grade bonds, giving yields of 2-3%. The group continues to maintain very prudent balance sheet practices with no debt.
• Dividends. Valuetronics has proposed a final dividend of 13 HK cents/share and a special dividend of 7 HK cents/share, which amount to a payout ratio of about 63%.
Full report here.