1) High Ratio for dividend yield over the price to book ratio plus 2) low leverage level (little borrowings) as interest rate rises, high debt will be a burden
In addition, I will think that a separate list of winners recommended by Nextinsight forum experts should also be shortlisted. For example, Superbowl has low book value as it did not revalue their properties based on current price. This potential winner can only be identified by Nextinsight forum experts and not by the above stock screening process.
I remembered valuetronics was badly bashed down by uob kay hian analyst for the eroding margins of the LED lightings business last year and it went down to below 20c.
Does this concern still lingers?
Valuetronics Holdings
UOBKayhian on 10 Aug 2012
Key takeaways from analyst briefing:
· Results below par. Valuetronics Holdings’ (Valuetronics) 1QFY13 net profit declined 18.7% yoy to HK$25.7m, or 18.6% of our full-year profit forecast. This was below our expectations mainly due to proportionately higher-than-expected revenue contribution from lower-margin LED lighting products.
· Revenue up 20.4%. 1QFY13 revenue was up 20.4% yoy to HK$634.5m. Consumer electronics revenue grew 36.9% yoy due to increased contribution from LED lighting products, while industrial and commercial electronics revenue declined 9.0% due to global economic challenges.
· Cessation of licensing business. As a result of shrinking market penetration and widening losses, Valuetronics has also decided to terminate the licensing business by 2012. Termination expenses and impairment charges are estimated at HK$28m and will be recognised in 2QFY13.
Stock Impact
· Challenging environment ahead. We expect Valuetronics to face challenges ahead due to:
a) weaker demand from industrial and commercial customers, which make up a quarter of sales,
b) margin erosion in LED lighting products, which contribute almost half of top-line, and
c) rising labour cost.
· Margin erosion. In the next five years, we believe that retail prices for LED light bulbs will decline faster than component costs, resulting in margin erosion for the OEMs. China-based OEMs like Valuetronics may see added margin pressure as many new OEM entrants cut prices to win market share.
· ROE decline. Although we expect Valuetronics to grow LED lighting sales by 15-20% annually, we believe that declining margins will offset top-line growth. In addition, the group must also continually invest in fixed assets to support volume growth amid falling profitability, which will weigh on ROE.
Earnings Revision
· Slashed forecast. We have increased our revenue forecast by 6.6% and 12.4% in FY13 and FY14 respectively. However, we have also reduced core profit by 32.2% and 32.9% in FY13 and FY14 respectively to account for lower-than-expected margins.
Valuation/Recommendation
· Downgrade to SELL with lower target price of S$0.16 (previously S$0.31), representing 19.2% downside from current price. Our target price is pegged to 3.9x FY13 PE (previously 5.0x), 0.5 SD below 5-year average forward PE of 4.9x.
I suggest that you read the latest interim report and get a feel for this company. I took the sell-down (< 0.20c) as an opportunity to take a position and has added up to 0.235c. The management bit the bullets in closing down the lost making licensing business. This step though painful was a correct one to regain its footing.
Based from the latest chairman's report, I am quietly confident that the 2H performance should be just as good as 1H and this means they can well afford to hike the dividend payout to hkd17 cents (which they paid in 2012)or better.
Already we are seeing good follow-on interest in the share this week (intra-day high of 0.255 was recorded).
My top pick for 2014 is not for capital gains but defensive yield. I think market while underperforming DM, has got 2 good years since 2011, and the low lying fruits are already plucked. I do not expect companies earning to improve significantly due to various market and cost constraints in Singapore, not to mention geo-political risks around our doorstep ( Indonesia, Thailand elections, North Korea mad leader, Japan and china playing who blink first etc), I would rather set a more conservative target.
APTT is currently having a yield of close to 11%. Fall any further, yield will break 11% and higher.
Prospective buyers can wait for the tax settlement amount to be finalized, which is the key threat to sustainability of yield. Otherwise, company have plenty of room to maneuver to sustain the yield for the next 2 years at least. In fact, it is quite possible to sustain the yield in the longer run if we factor in a 5% growth in Asset EBITA annually, Which is not actually a tall order.
For the nitty gritty of details if u are interested, u can visit my blog at
I do not really like defensive stocks like SingTel/Starhub or the capitamall Trust/Asia going into 2014. I feel that they will be flat or register a less than 5% gain for this year.
1. KSH holdings
Locked in sales on most of the properties. should be affected much by property cooling.
Has a very good order book and revenue for this year should be guaranteed.
Dividend yield around 5%.
2. Valuetronics
3. Vard holdings
watch it for some time. It's a premium OSV supplier.
Likely to see its turnaround this year, esp with 2013 order book reaching highest point of the last 5 years.
Will add more based next quarter result.
