For the year ended March, Valuetronics recorded revenue of HK$1.65 billion, down 4%, in line with what they were expecting.
The company reported earnings of HK$111 million, down 33.1%, weighed down by a HK$48.4 million impairment made for Trio AI. If excluded, the bottom line would have been HK$160 million, down 4%.
The impairment of Trio AI was made because of weaker-than-expected demand. Valuetronics is weighing options such as recovering value from the GPUs by redeploying the hardware, or sell to other companies and potentially recoup around HK$130 million by end of 2026, according to Cheong and Mo.
That aside, the analysts believe that with a more favourable product mix, Valuetronics can expect its gross margin, which was at 18.8% in FY2026, to remain at a "healthy" level going forward.
From their perspective, what is also interesting about the company is its capital management. Even with the lower earnings, the company plans to pay final and special dividends that will bring its full-year total to 38 HK cents, up from 27 KHK cents in the preceding year.
Backed by its strong cash position of HK$1.2 billion, the company has launched a plan to return HK$300 million to shareholders over two years. For one, it will improve its dividend payout policy from 30 to 50%, to 50 to 70%.
In the current FY2027, it is allocating around HK$66 million in special dividends and not less than HK$80 million in share buybacks. The remaining HK$154 million will be used for the following FY2028.
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Meanwhile, Cheong and Mo, citing improving earnings visibility and a positive shift to higher margin products, have applied a higher valuation multiple of 19x ex-cash FY2028 earnings, up from 13x previously, leading to a higher target price of $1.88, up from $1.03 previously.
The analysts note that Valuetronics is now trading at just 10x FY2028 ex-cash earnings and offers an attractive FY2028 dividend yield of about 6%.
"We believe valuations remain undemanding, given Valuetronics’s defensive earnings profile and strong cash generation," state Cheong and Mo.
Valuetronics shares, as at 2.33 pm, changed hands at $1.14.
