Background: Valuetronics is an electronics manufacturing services (EMS) company focused on an 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).
Recent development: 1HFY Mar12 revenue registered a positive growth of 26.3% YoY to HK$1,154m but corresponding net profit declined by 1.9% YoY to HK$61.6m. Management said that a slowdown in demand has started to show in its OEM/ ODM business but the effect was partly masked by strong growth from one particular OEM customer this quarter.
Key ratios…
Price-to-earnings: 3.6x
Price-to-NTA: 0.89x
Dividend per share / yield: HK$0.07 / 11.4%
Net cash/(debt) per share: HK$0.163
Net cash as % of market cap: 13%
Share price S$0.205
Issued shares (m) 358.30
Market cap (S$m) 73.45
Free float (%) 45.9
Recent fundraising activities Nil
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 -16.3%
52-week price range S$0.190-0.310
Our view
Net margin depressed by higher SG&A. The company incurred higher SG&A expenses due to increased salaries and bonuses. In addition, there was a full-quarter cost effect from the licensing business which commenced in 1QFY Mar12. Half-year net margin fell from 6.7% last year to 5.2% this year.
Brand licensing business did not disappoint. We have been hopeful that the brand licensing business could turn out to be a winner and its performance did not disappoint us. Revenue for this segment showed a sharp 429% YoY growth and a 133% QoQ growth in 2QFY Mar12. The licensing agreements give Valuetronics exclusive rights to use the “Whirlpool”, “Maytag” and “Amana” brands for home appliances in the North American market.
Managing the challenges. Global manufacturing activities are slowing down and weak consumer demand continues to be the biggest threat facing the company. Mass production for a number of new OEM customers is scheduled for early 2012, which may offer some reprieve from the macro slowdown. Valuation for the stock remains relatively cheap at only 3.6x FY Mar11 PER and 0.89x NTA.
No comments:
Post a Comment