SINGAPORE (Sept 24): Valuetronics’ Sept 17 announcement of a temporary shutdown of the Danshui plant due to flash floods caused by Super Typhoon Mangkhut was swiftly followed by a Sept 21 announcement that power supply at the plant has since been reinstated, and all production facilities have reopened.
Valuetronics says the majority of production facilities have not been hit, though there was some damage to inventory, whose replenishment is underway and details of full insurance coverage are being worked out.
And management expects production to gradually ramp up over the next two weeks to make up for the possible shortfall in volume.
Meanwhile, Valuetronics’ main manufacturing facility at Daya Bay remains intact and continues normal operations.
The Danshui plant is the older plant which caters mainly to the production of smart lighting and electronic toothbrushes by the Dutch MNC, while Daya Bay houses production for auto and other industrial & commercial electronics (ICE) customers.
Based on a preliminary assessment of the updated tariff list, management has guided that less than 10% of total revenue could be directly subjected to the higher tariffs as a result of the US-China trade war.
Among the affected customers, those with higher product margins are likely to absorb the additional costs, while others could request for some cost-down, in which case a small discount could be offered out of goodwill, says CIMB-CGS Securities in a recent report.
Discussions with customers remain ongoing, though management has not observed any significant change in sentiment or orders.
Should the trade war escalate, Valuetronics could actively seek other options with customers, including the relocation of some operations to Southeast Asia, most probably via partnerships, adds CIMB-CGS.
CIMB-CGS expects the normalised inventory level and robust demand of smart lighting to drive a higher q-o-q consumer electronics (CE) sales in 2Q19F, but this is unlikely to improve significantly y-o-y given the high revenue base in 2Q18 and 3Q18.
“We believe the strong growth trajectory for auto connectivity modules will continue, thereby mitigating some CE weakness. Overall, we maintain our FY19F EPS growth of 2.9%, and look forward to a stronger recovery of 17.5% EPS growth in FY20F,” says analyst Ngoh Yi Sin.
At the current level of 6.8x FY20F P/E (3.5x ex-cash basis), Ngoh also thinks there is value in the stock, supported by its attractive dividend yield of 6.9%.
“We make no change to our forecasts, ‘add’ call and target price of 95 cents, pegged to 10x CY19F P/E,” says Ngoh, “We believe management’s recent share buyback of 630,000 shares at $0.6334/share could be seen as a vote of confidence in the longer-term prospects of the company.”
Year to date, shares in Valuetronics are down 28.4% to 68 cents.
