Valuetronics

Valuetronics: (S$0.39) Ceased production of mass market LEDs; offers compelling value

Valuetronics' 3QFY16 net profit slumped 35.8% y/y to HK$25.2m, while revenue fell 27.1% to HK$434.5m, missing estimates. This took 9MFY16 earnings to HK$90.9m (-16.9%) or 66% of full year forecast.

The weak top line was dragged by lower demand for LED products in the consumer electronics segment (-61% to HK$141m) due to intense competition and the cessation of mass market LED light bulb production in the quarter.

This was partially compensated by increased sales in industrial and commercial electronics (+24.9% to HK$293.5m) from improved demand as well as a new customer.

Gross margin widened to 16.2% (+2.2ppt) on the change in sales mix. Other income fell to HK$1.4m (-73.4%) due to FX losses arising from the depreciation of the Rmb against HKD.

Notably, the business generated strong operating cashflow of HK$285.2m for 9MFY16, has zero debt and boasts HK$1.79 ($0.33) cash per share. Current assets of HK$1.27b far outweighs total liabilities of HK$696.3m.

Moving ahead, Valuetronics is expected to benefit from a widened product portfolio and opportunities in the pipeline, but remains cautious towards the impact of a possible strengthening of the USD against Rmb, and a further slowdown in China’s economy.

Valuetronics is currently trading at 6.6x annualised 9MFY16 P/E, and near 1x book. Stripping out the effects of cash, the lighting specialist is trading at a compelling 1.35x EV/EBITDA, and 1.03x ex-cash P/E.