Valuetronics: From a post-2QFY16 results briefing, Maybank-KE expects that the LED contributions to Valuetronics’ will continue to decline in the next two quarters, till an eventual exit.
This is amid its consumer electronics revenue slumping 41% y/y in the quarter, largely driven by weak LED contributions, as 90% of the LED products are approaching the end of their product life.
On the bright side, Valuetronics acquired new industrial customers, including a US-based automotive customer, which already contributed a significant 3-5% of revenue. While the product is not disclosed, Maybank-KE understands that the new customer is a tier-one supplier serving automotive companies. Valuetronics is the exclusive manufacturer for one of its brands.
Management also expects two additional customers in 2HFY3/17, in the printer and telcom industries. Gross margins are expected to expand from 13.1% in FY3/15 to 14.6% in FY3/16, thanks to a better product mix.
For now, Maybank-KE cuts FY15-17 EPS by 9-16% to reflect the quick LED decline. Consequently, the house’s TP for Valuetronics falls to $0.57 from $0.62.
Valuetronics is currently trading at 6.5x FY17 P/E or 2.6x ex-cash, vs peers’ average of 9.2x.
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