<Results First Take>

  • 1HFY22 below; Margins impacted by component shortage
  • Severe component shortage impacted both revenue and margins
  • Automotive customer dropped off, partially offset by stronger demand from customers in the e-commerce and logistics industry
  • Vietnam facility on track to ramp up by end-FY22
  • Interim dividend of HK4cts/share
  • We currently have a HOLD recommendation and TP of S$0.60; More updates after the results briefing

Financial Results

HK$’m1HFY221HFY21y/y %
  Industrial & Commercial695.1729.8-4.8%
Gross Profit143.6185.9-22.8%
Gross Profit Margin14.2%17.0%-2.8 ppts
Profit After Tax56.691.5-38.1%

Key Operational Updates

  • Severe component shortages affected both revenue and margins.
  • Industrial & Commercial segment:
    • Significant decline in revenue as its Automotive customer switched suppliers from Valuetronics to another supplier in the US, in line.
    • This was partially offset by revenue growth from a printer customer who benefitted from e-commerce sales and a sensing devices customer benefitting from the boom in the logistics industry.
  • Margins were also negatively affected by the increased labour and operating costs in China due to an appreciating RMB.
  • Vietnam expansion is on track; Assuming no worsening of the COVID-19 situation in Vietnam, the facility is on track to go into mass production by end-FY22 (2QCY22).
  • Declared interim dividend of HK4cts/share (1HFY21: HK5cts/share), representing a payout ratio of c.30%.

Our Thoughts
1HFY22 earnings are below our expectations as margins were affected by component shortages. With the ongoing component shortage and its Vietnam facility still underway, we continue to remain neutral on Valuetronics as we await its turnaround. As mentioned in our earlier report, there were significant headwinds to the stock:
1.        Loss of customers due to the US-China Trade War, and
2.        Component shortages.
However, we maintained a HOLD recommendation for the stock due to its strong balance sheet (HK$936.7m cash, representing c.63% of it market cap; zero borrowings) and attractive valuation of 9.7x FY22F PE, which is at a c.40% discount to its peers. 
We currently have  HOLD recommendation and TP of S$0.60. More updates after the results briefing with management later.