November 18, 2022

1HFY23: In Line With Expectations, Challenging Market Conditions Persist 

VALUE’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, including COVID-19 lockdowns in China, the Russia-Ukraine conflict and US Fed rate hikes. Maintain HOLD and target price of S$0.52. 

RESULTS 

• 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: a) higher component prices caused by tight supply, and b) China’s zeroCOVID policy, which has impacted the group’s supply chain 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: a) the Russia-Ukraine conflict, b) rising geopolitical tensions, and c) US Fed rate hikes. 

• 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%. 

STOCK IMPACT 

• Future prospects for the Vietnam segment. Upon VALUE’s newly-constructed Vietnam campus commencing operations, the group has consolidated its facilities into one campus site since Jun 22. This has allowed optimisation of operations and costs for the group. Additionally, with the easing of COVID-19 restrictions and reopening of the economy, the group has been in talks with potential customers on its electronics manufacturing service capabilities. Although Vietnam has yet to contribute to 1HFY23 revenue, we maintain a positive outlook on the segment going forward. 

• Investment in corporate sustainability. VALUE maintains a keen focus on sustainability, having invested HK$12m on a solar power system in China. This renewable energy source has supplied 20% of the electricity used in the region since Jul 22, serving as an alternative source should there be any power shortages in China. Against the COVID-19 lockdowns of major cities in China, VALUE’s proactive strategy to invest in this contingency plan assures us of strong involved management. 

EARNINGS REVISION/RISK 

• None. 

VALUATION/RECOMMENDATION 

• Maintain HOLD and target price of S$0.52, pegged to an unchanged long-term mean PE of 11x FY23 EPS. 

SHARE PRICE CATALYST 

• Positive outlook on Vietnam market. 

• Proactive management amid market challenges. 

COMPANY DESCRIPTION 

Valuetronics Holdings offers original equipment manufacturing and original design manufacturing services. The company serves customers in the telecommunications, industrial, commercial electronic products and consumer electronic products industries.

HOLD by UOB Kay Hian Research. Share price closed at S$0.52