Valuetronics

Valuetronics: ($0.35) Disappointing 2QFY15 weighed by slowdown in LED segment Valuetronics posted a disappointing set of 2QFY15 results, with net profit down 8% y/y to HK$36.3m, while revenue slipped 1% to HK$627.6m, mainly dragged by a slowdown in demand in its LED lighting segment. As a result of agressive pricing strategies by Chinese competitors in the structurally declining LED segment, Valuetronics posted lower average selling prices which subsequently led to a gross margin decline of 0.2 ppt to 13.1%. Meanwhile, the bottom line was further weighed by increased admin expenses (+17%) from higher headcount. Management opines that the challenging conditions in the LED lighting business is likely here to stay, with competitors aggressive on pricing strategies. The segment seems to be in a structural decline, with some major LED players making plans for major restructuring of their business activities in the light of the business economics. At $0.35, Valuetronics is trading at 5.6x forward earnings, supported by cash/share of $0.19.