VALUETRONICS: Flushed with cash, dividend outlook strong

Excerpts from analysts' reports

KGI Fraser analyst: Renfred Tay

Net cash (incl. AFS financial assets) is now at a record HK$819m (~S$0.39 per share) after VALUE generated another HK$47.6m in operating cash flow. Value/yield/recovery play; Maintain BUY. Although we have an unchanged view on FY17F, we finetune our forecasts slightly with the updated outlook from management. Our revenue and net profit forecast changes by ‐2% and +0% respectively. Our TP of S$0.62 is unchanged (still based on 10x FY17F P/E) given the minor impact from our forecast tweaks on earnings. VALUE currently trades at 8.2x FY17F P/E (2.5x ex‐cash) and 2.1x FY17F EV/EBITDA. Valuetronics Share price:  51 c Target:  62 c We also note that about S$0.39 of its stock price of S$0.525 comprises of its cash and bond holdings. We continue to favour VALUE for its value/yield/recovery story and maintain our BUY rating. Key risk: Unforeseen setbacks at VALUE’s automotive customer could bring about lower than expected ICE growth.

UOB Kay Hian analyst: Nicholas Leow

1QFY17 net profit fell 11.6% yoy to HK$29.6m, attributable to the exit from the mass market LED segment. Valuetronics is trading at 8x FY18F PE (ex-cash: 3.3x) with a potential dividend yield of 7.1%.

Maintain BUY and PE-based target price of S$0.60.

The company remains a very defensive manufacturing play with solid cash-generating characteristics and a resilient dividend yield.

Prudent balance sheet with zero debt. As of 30 Jun 16, net cash stood at S$0.34/share, up from S$0.22/share as at 31 Dec 16. Net cash/share forms about 60% of Valuetronics’ market capitalisation.

If we were to include available-for-sale (AFS) financial assets, net cash/share would have been S$0.37, or 72% of market capitalisation.

AFS financial assets comprise mostly US$ investment grade bonds, giving a yield of 2-3%. The group continues to maintain a very prudent balance sheet with no debt.

Full UOB Kay Hian report here.