FY22: Above Expectations, But Remains Cautious On Its Outlook
VALUE’s FY22 net profit of HK$114m (-39% yoy/+1% hoh) was above our expectations,
forming 115% of our full-year estimate, due to a lower-than-expected revenue decline.
VALUE’s outlook remains cautious as it expects the ripple effect of the supply chain
bottlenecks to last beyond 2022. Other uncertainties include the COVID-19 pandemic,
the Russia-Ukraine conflict and US-China trade tensions. We raise our FY23 EPS by 8%.
Maintain HOLD and target price of S$0.52.
RESULTS
• Results above expectations. Valuetronics’ (VALUE) FY22 net profit of HK$114m (-39%
yoy) was above our expectations, beating our estimate by 15%. The beat was due to a
lower-than-expected revenue decline in 2HFY22. Revenue fell 11% yoy due to severe
shortages of certain key electronic components that affected VALUE’s ability to meet
orders. Gross margin fell 3.3ppt to 13.6% due to: a) higher component prices caused by
tight supply, and b) China’s increased labour and operating costs, under an appreciating
renminbi.
• The ICE segment’s revenue declined due to its customer switching suppliers and a
shortage of components. VALUE’s industrial and commercial electronics (ICE)
segment’s revenue decreased 17.5% yoy to HK$1,320.5m in FY22 (FY21: HK$1,600.8m)
due to a significant drop in sales caused by its auto customer switching its production over to
another vendor in North America. Furthermore, the shortage of key electronic components
also affected order fulfilment for certain ICE customers. On the consumer electronic (CE)
front, revenue rose by 3.8% to HK$706.9m in FY22 (FY21: HK$680.7m), mainly due to a
rebound in orders from smart lighting customers.
• Cautious outlook due to potential headwinds. VALUE remains cautious on its outlook as
it expects the ripple effect of the supply chain bottlenecks to last beyond 2022. VALUE
also anticipates potential headwinds from: a) the component shortages, b) the COVID-19
pandemic, c) the Russia-Ukraine conflict, and d) US-China trade tensions.
• Proposes interim dividend of 4 HK cents/share. VALUE has recommended a final
dividend of 10 HK cents/share for 2HFY22. Together with the interim dividend of 4 HK
cents/share for 1HFY22, the total dividend amounts to 14 HK cents/share (vs 21 HK cents
in FY21). This represents a payout ratio of 53%.
STOCK IMPACT
• Vietnam expansion on track. Even with the ongoing COVID-19 pandemic, VALUE’s
expansion in Vietnam has remained on track. VALUE’s newly constructed Vietnam campus
in Vinh Phuc Province has commenced mass production for three customers in the last
quarter of FY22, following the successful completion of ISO and customer audits. These
mass production projects will serve as a reference for other customers on the readiness and
scalability of the Vietnam campus under VALUE’s regional manufacturing footprint strategy
which targets the diversified needs of global customers.
• Trial production for new ICE customers. VALUE is preparing for the trial production for its
newly acquired ICE customers, including a hardware provider customer for retail chain stores
and a customer providing cooling solutions for high performance computing environments,
which is expected to contribute revenue in FY23. Meanwhile, the revenue rebound in the CE
segment that was seen in FY22 is not expected to continue in FY23 due to lower customer
forecasts and the shortage of components.
EARNINGS REVISION/RISK
• We raise our FY23-24 earnings forecasts by 8%, after increasing our revenue
assumptions by 13% to account for an increase in ASP to pass on extra input costs. On
the other hand, we have reduced our gross margin assumption by 0.1ppt to 13.7%/13.6%
for FY23/FY24. This is to account for the rising production costs due to the shortage of
components and increased labour costs in China.
VALUATION/RECOMMENDATION
• Maintain HOLD and target price of S$0.52, pegged to a peers’ average of 11x PE
(reduced from 12x due to sector de-rating) for FY23.
SHARE PRICE CATALYST
• Additional customers in the new sectors.
• Higher-than-expected dividends and potential M&As.
