She noted FY2022 earnings plunged by 39% y-o-y due to weak margins, and expects margins to remain weak in FY2023.
She adds that though the environment remains challenging, Valuetronics has a “sound balance sheet” with no debt, and its cash-to-market capitalisation ratio remains high at 69% for FY2022.
In the longer term, the ramp-up of its Vietnam plant and potential contribution from new customers should help to boost the bottom line, she thinks.
But due to the “persistent headwinds” that the company faces, she has lowered their gross margin assumption for FY2023 and FY2024 to 13.3% and 13.8% respectively, down from 15.3% and 16.3% previously. By extension, earnings forecasts were cut by 18% and 23% respectively as a result.
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She says “we believe in the value of holding on to Valuetronics, given its strong balance sheet, which should help the group to ride through the current challenging environment.”
Further risks for the company are a protraction of the Covid-19 pandemic and slow recovery of the supply chain disruptions, as well as a re-escalation of the US-China trade war, customer concentration risk, and/or a cut in dividends.
In an unrated note dated May 30, CGS-CIMB Research’s William Tng has observed that Valuetronics’ management expects the company to remain profitable in FY2023.
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As in Ling’s note, the company management also believes component shortages and inflationary cost pressure will exert a negative impact on its gross profit margin.
Tng also notes that Valuetronics’ management, in its results statement, highlighted that the
revenue rebound in the consumer electronics segment that was seen in FY2022 is not expected to recur, due to lower customer forecasts and the components shortage problem.
As of 2.37pm, shares of Valuetronics were trading at 53 cents, with a FY2023 P/B ratio of 0.9 and dividend yield of 4.5%, according to DBS’s estimates
