SINGAPORE (Feb 15): RHB is upgrading Valuetronics to "buy" with unchanged target price of $1.05, saying the recent share price correction offers a good entry for investors who focus on yield returns.
On 9 Feb, Valuetronics reported a stronger 3Q18, with NPAT surging 35.7% y-o-y, which was slightly above RHB's expectations. This was due to 48.1% higher revenue at its Commercial Electronics (CE) unit and 22.3% higher revenue at its Industrial & Commercial Electronics (ICE) unit.
See: Valuetronics' 3Q earnings jump 35.7% to $9.8 mil on higher revenue
In a Wednesday report, analyst Jarick Seet says the strong growth in Valuetronics' CE segment in the third quarter was mainly driven by smart light-emitting diode (LED) lighting products, with Internet of Things (IoT) features.
"Management remains optimistic about the growth prospects of the smart LED lighting product, as IoT devices are becoming more popular – this is expected to lead to its CE revenue surging 48.1% y-o-y in 4Q18," says the analyst.
Meanwhile, new projects involving in-car connectivity modules and increasing demand from certain existing customers contributed to ICE growth. Looking ahead, Seet expects the ramp-up of these products to continue in FY18, and expects ICE revenue growth to be around 10-12% per year.
As of 3Q18, Valuetronics had a healthy balance sheet with zero debt, and a net cash of HK$640.4 million ($107.5 million). Management has also previously mentioned that it aims to use most of this for M&As. Targets would be downstream players, or horizontal businesses that fit and synergise with its existing business — which now boasts of stronger fundamentals.
"We expect management to increase its dividend payout for the year. Our total dividend yield forecast for F18F is around 4.8%," adds Seet.
Looking ahead, he expects Valuetronics' performance to continue for the remaining quarters of FY18, due to healthy growth drivers, especially for its in-car connectivity modules.
As at 11.52am, shares in Valuetronics are up 3 cents at 95 cents or 19 times FY19 earnings.
