In a Nov 17 research note, analyst Jarick Seet points out that Valuetronics’ 1HFY2022 gross profit margin shrank to 14.2%, compared to 16% the year before due to price surges and prolonged order lead times driven by the global components shortage.
Noting management’s guidance of continued margin erosion in the near term due to strong yuen and higher operating costs in China, Seah has cut his FY2022 earnings forecast by 10%.
He also highlights that some of Valuetronics’ customers in the auto and consumer electronics industries are planning to switch other suppliers in North American and Asean to better serve their US markets by the end of FY2022.
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To that end, he expects Valuetronics’ revenue to drop by 15% to 20% in FY2022 across both segments.
While the company’s expansion into Vietnam is progressing on track and its Vietnam campus expected to commence mass production by 4QFY2022, overall, Seah notes that Valuetronics’ outlook looks weak. “With such headwinds in store, we anticipate management to conserve its cash pile and tone down dividends,” he remarks.
He forecasts a dividend yield of 4% for Valuetronics for FY2022. “Due to the challenging outlook, we recommend that investors sell this stock,” he says.
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Analysts’ have been mixed on Valuetronics following the release of its 1HFY2022 results, with some reiterating to “hold”, while others echoing Seah’s recommendation to sell.
See: Analysts mixed on Valuetronics, with some pessimistic about outlook
Shares in Valuetronics closed at 56 cents on Nov 19.
