Comprehensive Analysis of Valuetronics Holdings – November 14, 2024
Comprehensive Analysis of Valuetronics Holdings – November 14, 2024
Date: November 14, 2024
Broker Name: UOB Kay Hian
Valuetronics Holdings: A Deep Dive into 1HFY25 Results and Future Prospects
Valuetronics Holdings, a prominent player in the original equipment manufacturing (OEM) and original design manufacturing (ODM) sectors, has shown resilience and strategic growth in its 1HFY25 results. The company serves a diverse clientele across telecommunications, industrial, commercial electronic products, and consumer electronic products industries.
Financial Performance Overview
Valuetronics reported a net profit of HK\$91 million for 1HFY25, marking a 10% year-on-year (yoy) increase. Despite a slight revenue dip of 3% yoy to HK\$862 million, the company managed to offset weaker demand from existing customers through contributions from new customers. The gross margin expanded for the fourth consecutive half-year period, reaching 16.8%, driven by a favorable sales mix, lower material costs, and reduced labor expenses.
Key Financial Metrics
| Metric |
1HFY25 |
1HFY24 |
2HFY24 |
| Revenue (HK\$m) |
862.1 |
891.3 |
778.5 |
| Gross Profit (HK\$m) |
144.8 |
138.9 |
126.3 |
| Gross Margin (%) |
16.8 |
15.6 |
16.2 |
| Net Profit (HK\$m) |
90.5 |
82.1 |
77.4 |
Operational Highlights
Valuetronics’ diversified customer portfolio played a crucial role in mitigating the impact of reduced demand from existing customers. Consumer electronics (CE) revenue fell by 18% yoy to HK\$193 million, while industrial and commercial electronics (ICE) revenue saw a modest increase of 2% yoy to HK\$669 million, bolstered by contributions from a new customer, a Canada-based network access solutions provider.
Margin Expansion and Cost Management
The company achieved gross margin expansion for the fourth consecutive half-year period, reaching 16.8%. This improvement was attributed to higher-margin new products, lower labor costs from the depreciation of the renminbi, and lower material costs due to an improved component supply chain.
Dividend Policy and Shareholder Returns
Valuetronics declared an unchanged interim dividend of 4 HK cents per share and a special dividend of 4 HK cents per share, reflecting its commitment to rewarding shareholders. The company maintained a robust free cash flow of HK\$53 million in 1HFY25, with net cash improving to HK\$1.1 billion, equivalent to around 77% of its market cap.
Future Prospects and Strategic Initiatives
Capturing the AI Boom with Trio AI JV
Valuetronics has entered into a 55-45 joint venture (JV) named Trio AI with Hong Kong-based graphics processing unit (GPU) and artificial intelligence (AI) solutions provider SinnetCloud Group. Trio AI aims to provide GPU and AI-related cloud services in Hong Kong, capitalizing on the rising computational needs and growing AI demand. The JV is expected to start contributing positively to revenue and profitability from FY26.
Expansion Opportunities with Vietnam Plant
The company’s Vietnam campus positions it strategically to meet changing customer needs, especially as customers look to de-risk from China amidst potential higher US trade tariffs. As of the end of 1HFY25, the Vietnam plant was operating at approximately 40% utilization, providing ample room for production ramp-up for existing or new customers.
Valuation and Recommendation
UOB Kay Hian maintains a BUY recommendation for Valuetronics with a price target of S\$0.78, pegged to a 10.8x PE for FY25. This valuation reflects the potential strong demand from new customers and the anticipated contribution from the Trio AI JV. Valuetronics is currently trading at a modest 2x FY24 ex-cash PE and offers an attractive FY25 dividend yield of 7%.
Share Price Catalysts
- Higher-than-expected dividends
- Potential mergers and acquisitions (M&As)
- Proactive management amid market challenges
Peer Comparison
When compared to its peers, Valuetronics demonstrates competitive valuation metrics:
| Company |
Ticker |
Market Cap (US\$m) |
PE (2024) |
PE (2025) |
P/B (2024) |
P/B (2025) |
EV/EBITDA (2024) |
EV/EBITDA (2025) |
ROE (%) |
Dividend Yield (%) |
Net Gearing (%) |
| Aztech |
AZTECH SP |
398 |
7.4 |
7.1 |
1.5 |
1.5 |
3.3 |
3.1 |
20.4 |
12.3 |
(73.0) |
| Fu Yu |
FUYU SP |
77 |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
(37.6) |
| Hon Hai |
2317 TT |
91,580 |
18.7 |
14.1 |
1.8 |
1.6 |
9.8 |
8.0 |
9.7 |
2.8 |
(21.8) |
| Sanmina |
SANM US |
4,413 |
20.2 |
14.2 |
1.9 |
1.8 |
9.3 |
7.8 |
9.8 |
0.0 |
(13.1) |
| Venture |
VMS SP |
2,719 |
14.9 |
13.8 |
1.3 |
1.3 |
8.3 |
7.7 |
8.6 |
6.0 |
(41.0) |
| Valuetronics |
VALUE SP |
194 |
9.0 |
8.4 |
1.0 |
1.0 |
1.6 |
1.6 |
11.8 |
7.0 |
(82.3) |
Conclusion
Valuetronics Holdings continues to demonstrate resilience and strategic growth through its diversified customer base, cost management, and strategic initiatives such as the Trio AI JV and Vietnam plant expansion. With a strong financial position, attractive dividend yield, and growth potential, Valuetronics remains a compelling investment opportunity.
For detailed analysis and recommendations, UOB Kay Hian’s report from November 14, 2024, provides an in-depth review of Valuetronics’ performance and future prospects.
