Another undervalued stock

OCBC:
Valuetronics Holdings: Underappreciated, undervalued; maintain BUY
We believe that Valuetronics Holdings (VHL) has been largely overlooked by the market despite reporting a strong set of results recently. The shipment of new ODM products to a new customer also demonstrates VHL’s continued efforts in expanding its range of product offerings. Moreover, Philips Electronics, its major customer, also reported robust growth in LED-related sales and guided for an increased adoption in LED products worldwide. We believe that this augurs well for VHL as Philip’s Lighting Division contributes the largest proportion of revenue amongst its major customers. In view of the earthquake and tsunami disaster in Japan, VHL updated us that it only sources a minimal amount of certain electronic components there. These components form only a small proportion of VHL’s total components expenditure. Nonetheless, we remain cautious on the possible impact that global component shortages could have on VHL given Japan’s pivotal role as a global electronics player. We believe that VHL still represents a compelling investment proposition given its growth opportunities and attractive valuations versus its peers. Maintain BUY and fair value estimate of S$0.47.  
Overlooked by market? We believe that Valuetronics Holdings (VHL) has been largely overlooked by the market despite reporting a strong set of results recently. As a recap, VHL reported a set of strong set of 3QFY11 results with bottomline jumping 133.8% YoY to HK$31.6m. New ODM products were shipped to a new customer and we believe this highlights VHL’s continued efforts in expanding its range of product offerings and capabilities. We further note from industry watcher IPC that sales for the EMS industry have shown a steady upward rise in 2010 with the trend continuing into 2011.

Major customer performance and outlook. Philips Electronics (Philips), the largest customer of VHL, posted a stable 1.8% YoY growth in revenue to €7.4b for 4QFY10. In particular, LED-related sales jumped 37% YoY to €276.5m, representing 14% of Philip’s total Lighting sales. Looking ahead, Philips opines that there would be an increased adoption in LED products worldwide and Lighting sales would also be boosted by growth in the professional luminaires market. We believe that this augurs well for VHL as Philip’s Lighting Division contributes the largest proportion of revenue amongst its major customers.

Limited impact from Japan disaster; but risks remain. The catastrophic 9.0-magnitude earthquake and tsunami in Japan are expected to adversely affect the global technology sector. However, checks with VHL revealed that it only sources a minimal amount of electronic components from Japan for the making of telecommunications equipment. These components form only a small proportion of VHL’s total components expenditure. Moreover, VHL has established good working relationships with a wide network of suppliers globally. Nonetheless, given Japan’s significance as a global electronics player, there are concerns that the supply chain disruption and component shortages could cause global component prices to further spiral upwards.

Maintain BUY. Despite the current uncertainty and lack of visibility surrounding this unfortunate event, we believe that VHL still has ample growth opportunities ahead. Comparing VHL to its peers, we opine that it is undervalued and underappreciated by the market. VHL trades at a lower PER to its peers despite commanding higher profitability margins (Exhibit 1). Coupled with an attractive prospective yield of 8.0%, we reckon that VHL represents a compelling investment thesis. YTD, VHL has declined 14.3%. While this is larger than the broader market’s 7.5% YTD fall, it is still smaller than the 19.5% dip for the FTSE ST Technology Index. Maintain BUY and fair value estimate of S$0.47.

Thanks for highlighting Valuetronics. We have just checked the Expert Stock Screener - indeed the stock is very undervalued. It's almost 100% upside, based on consensus analyst estimate. However, the Screener which uses Ichimoku for its technical analysis, has not given a bullish signal --- yet.

nextinsight.net/index.php/component/cont...ticle/35-2008/3612-d

I agree it is undervalued --- what a laggard, why the market cannot re-rate this bugger? Maybe it should do a triple listing!!!

Just announced fantastic 104% jump in net profit --- best of all, 14 HK cents in dividend, which is about 12% yield on current price of 24 cents for the shares.

Going by the June 3 edition of the APF Expert Stock Screener, the stock Valuetronics is 81% short of consensus analyst target price. In addition, based on Ichimoku technical indicators, the technical outlook is positive.

For more info on the Screener, click WHAT STOCKS TO BUY?

Bullish on daily/weekly/monthly charts. First level support at $0.23, Second level support at $0.20. Bullish play intact until secondary support is broken.
[hr]
[admin 04-06-2011]:

Going by the June 3 edition of the APF Expert Stock Screener, the stock Valuetronics is 81% short of consensus analyst target price. In addition, based on Ichimoku technical indicators, the technical outlook is positive.

For more info on the Screener, click WHAT STOCKS TO BUY?