Valuetronics

Valuetronics: Feedback on an ongoing non-deal roadshow by RHB has been generally positive and key concerns remain on whether the growth in the Industrial and Commercial Electronics (ICE) segment can exceed or make up for the slowdown from its Consumer Electronic (CE) segment, especially its LED business portion. Management has highlighted that they are expecting double digit growth YoY from its ICE segment in FY16 just from existing customers with new products/models.

For the past 2 years, Valuetronics have gained at least 1 new customer each year that contributes to at least 3% of its revenue. House understands that they are constantly actively trying to get new customers on board and believes that there might be one or two in the pipeline ahead, which will add on to their ICE growth. Overall, RHB expects ICE to grow at least 20% in FY16, which should cover up for any decline in its CE Segment and result in a better gross margin and NPAT for FY16, just like its current FY.

House reckons that dividend for FY15 will be comparable to last year’s payout of HK$0.20 and expects better dividends if they perform better, which should be highly likely from its robust production activities. RHB continues to think that Valuetronics, which is just trading at around 2.5x FY16 ex cash P/E, coupled with a potential 8-9% dividend yield is a undervalued gem. Maintain BUY with TP of $0.64.