Background: Valuetronics is an electronics manufacturing services (EMS) company focused on OEM (80% of sales) and ODM (20%) business model. Its management is headquartered in Hong Kong and it has two factories in nearby Guangdong Province in China (Huizhou City and Daya Bay).
What makes it different: Valuetronics’ differentiating factor is its focus on green technology products (eg, energy‐saving LED lighting solutions for Philips) and customers with strong brands (eg, KitchenAid – high‐end cooking appliances, and Graco – digital baby monitors). More recently, it is expanding beyond traditional EMS with a new licensing arm.
Key ratios…
Price‐to‐earnings: 5.3x
Price‐to‐NTA: 1.4x
Dividend per share / yield: HK$0.14 / 7.7%
Net cash/(debt) per share: HK$0.276
Net cash as % of market cap: 15%
Share price S$0.285
Issued shares (m) 355.5
Market cap (S$m) 101.3
Free float (%) 46.7%
Recent fundraising Mar 2007: IPO at $0.23
Financial YE 31 March
Major shareholders Chairman & CEO Ricky Tse 22.2%, Director Chow Kok Kit 20.8%, Director Hung Kai Wing 10.3%
YTD change +14%
52‐wk price range S$0.175‐0.305
Our view
Early potential realised in full‐year results. Valuetronics has continued to display fine form since our last update, which only reflected 1Q11 results. Full‐year net profit to March 2011 doubled (+105%) to HK$121m on the back of impressive growth in the OEM business (Philips is the major customer, for which Valuetronics is the sole contract manufacturer for certain ranges of commercial LED bulbs). The ODM business also saw robust growth while the licensing business contributed for the first time.
Brand licensing still small but growing. Valuetronics has steadily grown its brand licensing business from 1% of sales in 1Q11 to 3% in 4Q11 with just one product – a Whirlpool air purifier. Two more products – electric fan and heater – will be added in FY12. While the business was not profitable in FY11 due to the upfront costs of staff, product packaging design and marketing, overall margins were not affected. In the current financial year, management expects margins to benefit from the enlarged product portfolio.
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