My average entry point on Valuetronics was about sgd21 cents. I started accumulating this stock since June 2013.
There were 5 reasons why I chose Valuetronics :-
- Closing down of “loss making” licensing business
- Established operations of over 20 years
- Strong balance sheet (no borrowings)
- Re-focusing of its management to its core business
- Stock is not covered by any research house
Share price is on a steady uptrend, forming a base around sgd29 cents.
Valuetronics has been managing its cash flow extremely well in the current FY. For the first 9 months, its free cash flow (FCF) has recorded about sgd 9 cents (assuming conversion rate of 0.163 against hkd), a rise of 270% over the corresponding period. Cash holding at end of 3Q has increased to sgd65 million (up 82%).
Profitability is recovering strongly this FY, up till 3Q, the company has recorded EPS of hkd29.9 cents (increase of 103%).
If we assume full year EPS of hkd 40 cents (equivalent to PE of 4.5) and payout of 40 % for this current FY (past payouts were between 35% to 46%), Valuetronics could potentially hike its dividend to hkd 16 cents, i.e. an equivalent of sgd 2.6 cents. This means we may get a potential dividend yield of 8.8% for FY14. If payout is at 45%, the yield increases to about 10%!.
Valuetronics only pay dividend once per year and the final year results will be out in May. The highest dividend paid by the company was at hkd 17 cents in FY12.
In my view, there is a clear investing case for Valuetronics and the rise is stock price is not an illusion but a reflection of its potential and a recovering/strong business model.
One of my core small cap value pick for 2014.
I suggest for like-minded value investors, please take a look at Valuetronics and assess for yourself.
Year ending March 2014 is likely to be a record year for them based on current profit trend. As of 9 months the profit is already S$17.8 mil or HK$108.4 mil. And if the dividend payout ratio is maintained, we will see a record dividend declared. Company has a consistent dividend payout of around 40% of their profits.
Note : record year is based on the results of the last 4 years.
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