12 August 2014

Valuetronics Quarterly Report Summary - August 2014 (Revenue Up 2.5%, Net Profit Up 1.8%)

Valuetronics is an Electronic Manufacturing Service (“EMS”) provider, which focuses on the design and development of products that meet the ever-changing customers’ needs. We are the preferred choice of some successful global companies involved in consumer electronics as well as industrial and commercial electronics products, with core competencies ranging from tool fabrication, injection moulding, metal stamping, machining, surface mount technology (“SMT”) and finished product assembly on full turnkey basis.

The Group classified its EMS business into 2 reportable segments, namely consumer electronics products (“Consumer Electronics”) and industrial and commercial electronics products (“Industrial and Commercial Electronics”).

Performance Review

Revenue increased 2.5% to HK$627 million mainly attributable to the growth in Industrial and Commercial Electronics customers offset by a decrease in Consumer Electronics customers. Net profit increased 1.8% to HK$34 million. PE is HK 9.0 cents, with NAV is HK$ 2.05. Expected ROE is around 15% - 20%. PE is around 8 - 9x.

The group is having a healthy balance sheet with current ratio of  >1.0 x and total liabilities to total asset ratio remains at 53%, with most of the liabilities come from payables and other payables / deposit  received.

Company Comment

We expect the Industrial and Commercial Electronics segment will continue to benefit from strong demand from existing customers in the next quarter due to the visibility of customer demand.

The current uncertainties in the broader China economy have weakened demand. We also see margin erosion as customers rolled out new and more aggressive pricing strategies in introducing mass market products. We are working to maintain margins through greater operational efficiency and supply chain productivity.

The Group will continue to remain vigilant in monitoring market developments and will continue with our efforts in improving our fundamentals, which include our design and development capabilities, production efficiency and inventory management. In addition, the Group will focus the resource to widen its customer and product portfolios in Industrial and Commercial Electronics and to improve its profitability.

My Notes

With Consumer Electronics remains weaker in foreseeable quarters, I believe the group would need to work harder to maintain the net profit margin as well as the growth momentum.

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