Valuetronics – Challenging Market Conditions

Excerpts from UOBKayHian report

Valuetronics (SGX: BN2)

• Valuetronics ’s 1HFY23 net profit of HK$58m (+2% yoy and qoq) was in line with our expectation, making up 50% of our FY23 estimate.
• 1HFY23 revenue went up 4% yoy due to increased customer demand. However, margins have fallen due to higher component prices and supply chain disruptions.
• A cautious outlook is maintained amid market uncertainties, the Russia-Ukraine conflict and US Fed rate hikes.

Maintain HOLD and target price of S$0.52.

Valuetronics results in line with expectations

Valuetronics’ (VALUE) 1HFY23 net profit of HK$58m (+2.3% yoy, +1.8% qoq) was in line our expectation, making up 50% of our FY23 estimate. Revenue increased 3.6% yoy due to greater demand in the US, Hong Kong, Indonesia and Canada segments. However, we note that gross and net margins fell by 1.7ppt and 0.1ppt respectively, due to:

• higher component prices caused by tight supply, and
• impact of the group’s supply chain disruption and productivity.

The ICE segment’s revenue rose due increased customer demand

VALUE’s industrial and commercial electronics (ICE) segment’s revenue increased by 15.9% yoy to HK$805.5m, due to a significant rise in demand from customers. However, revenue declined for the consumer electronic (CE) segment, by 23% yoy to HK$246m. This is mainly due to poorer demand in end-markets.

Conservative outlook due to challenging macroeconomic environment

VALUE expects lower consumer demand as consumer purchasing power and business confidence weakens from:

• the Russia-Ukraine conflict,
• rising geopolitical tensions, and
• US Fed rate hikes.

Valuetronics proposes interim dividend of 4 HK cents/share

VALUE has recommended an interim dividend of 4 HK cents/share for 1HFY23 (4 HK cents/share in 1HFY22). This represents a payout ratio of 30%.

Valuation/Recommendation

Maintain HOLD and target price of S$0.52, pegged to an unchanged long-term mean PE of 11x FY23 EPS. The catalysts will be positive outlook on Vietnam market and proactive management amid market challenges.

You can find the full report here and the company website here