A Full Analysis on Valuetronics Holdings Ltd

Valuetronics Holdings Ltd (Valuetronics) is an electronic manufacturing services provider based in Huizhou, headquartered in Hong Kong, and listed on the SGX. As of 30 September 2019, it is worth S$ 267.6 million in market capitalisation, a constituent of the FTSE ST Singapore, FTSE ST China, and FTSE Global Microcap. 

In this article, I’ll cover its financial results, recent challenges, growth plans, and valuation figures. Here are 10 key things to know about Valuetronics before you invest. They are as follows:

• Segment 1: Consumer Electronics
  Revenues had fallen by 44.0% to HK$ 824.6 million in financial year (FY) 2016 from HK$ 1.47 billion in 2015. This is because Valuetronics phased out and has exited from the mass LED light bulb business in that year. It has focused on producing shavers, electric toothbrushes, and as well as smart lighting products with IoT features. Since 2016, segment revenue has recovered, increasing from HK$ 824.6 million in 2016 to as much as HK$ 1.16 billion in 2019.
  
  
  

Source: Valuetronics’ Annual Reports

• Segment 2: Industrial & Commercial Electronics
  Revenues had grown from HK$ 956.2 million in 2015 to HK$ 1.67 billion in 2019 and thus, is the key growth driver of Valuetronics. This is due to receiving increasing amount of orders from its existing customers for its products such as printers, sensing devices, communication devices, and electronic products for the automotive industry.
  
  
  

Source: Valuetronics’ Annual Reports

• Key Geographical Markets
  Valuetronics had relied on both the United States and China for growth for the last ten years. They are key markets to Valuetronics.
  
  
  

Nation	Revenue 2010(HK$ Million)	Revenue 2019(HK$ Million)	CAGR (%)	% of Revenue 2019
United States	537.9	1,230.8	9.6%	43.5%
China	287.9	900.3	13.5%	31.8%
Other	310.3	697.7	9.4%	24.7%
Total	1,136.1	2,828.8	10.7%	100.0%

Source: Valuetronics’ Annual Reports

• Financial Results
  For the last 10 years, Valuetronics has increased revenues and earnings by CAGR of 10.7% and 14.5%. Sales had increased from HK$ 1.14 billion in 2010 to HK$ 2.83 billion in 2019. It has led to an increase in earnings, up from HK$ 58.8 million in 2010 to HK$ 199.5 million in 2019.
  
  
  

Source: Valuetronics’ Annual Reports

• Balance Sheet Strength
  As of 30 June 2020, Valuetronics has reported to have HK$ 10.9 million in non-current liabilities and HK$ 1.21 billion in total equity. Hence, the company has 0.90% in gearing ratio. At that time, Valuetronics has HK$ 1.82 billion in current assets and HK$ 885.5 million in current liabilities. Thus, its current ratio is 2.06.
  
  
  
• Cash Flow Management
  From 2010 to 2019, Valuetronics has generated:
  
  – HK$ 1.76 billion in positive cash flows from operations.
  – HK$ 46.1 million in interest income.
  – HK$ 48.3 million in net equities raised.
  
  
  Out of which, the company has paid out:
  
  – HK$ 405.8 million in net capital expenditures (CAPEX).
  – HK$ 628.0 million in dividend payments to its existing shareholders.
  
  
  It increased its cash balance from HK$ 139.9 million in 2010 to as much as HK$ 775.4 million in 2018. Thus, Valuetronics has built a track record of bringing in cash flows and chosen to split its proceed under 23:36:41 where 23%, 36%, and 41% are used for CAPEX, dividends, and retaining of earnings for future growth.
  
  
  
• Major Shareholders
  As of 14 June 2019, Valuetronics’ major shareholders are as follows:
  
  

Major Shareholders	Shareholdings (%)
Tse Chong Hing	17.53%
Chow Kok Kit	7.38%

Source: Valuetronics’ Annual Report 2019


Mr. Tse Chong Hing is appointed as Chairman and Managing Director of Valuetronics Holdings Ltd. Whereas, Mr. Chow Kok Kit is now appointed as the Executive Director of the company. Thus, both of them would be influential to the future direction of Valuetronics Holdings Ltd.

• Key Risk 1: Concentration Risk of Customers
  In FY 2019, Valuetronics had generated HK$ 1.97 billion in revenue or a total of 69.5% of its total revenues from four main customers. Hence, it is subjected to concentration risk of customers as Valuetronics relies on these four customers for its financial results in the immediate future.
  
  
  
• Key Risk 2: US-China Trade War
  As of 30 June 2019, 45% of Valuetronics’ exports to the United States is subjected to a 25% tariff imposed by the U.S. government. Valuetronics had, in response, identified Vietnam as a manufacturing site and begun mass production to fulfill its export orders to the United States. Moving forward, it plans to acquire a plot of land in an industrial park to set up its own manufacturing campus in Vietnam.
  
  
  
• P/E Ratio
  As of 30 September 2019, Valuetronics is trading at S$ 0.62 a share. Its current P/E Ratio is 7.61 based on its 2019 EPS of 46.20 HK cents and a current exchange rate of HK$ 5.67 per SGD. Hence, its P/E Ratio is now below its 5-year average of 9.24 but above its 10-year average of 6.82.
  
  
  

• P/B Ratio
  As of 30 June 2019, Valuetronics has S$ 0.494 in net assets per share. It has a current P/B Ratio of 1.26, below its 5-year average of 1.59 but it is above its 10-year average of 1.21.
  
  
  

• Dividend Yields
  After a dip in 2013, Valuetronics has paid out consistent dividends to its existing shareholders. In 2019, it had paid out as much as 20.0 HK cents or 3.53 Singapore cents.
  
  
  
  

Source: Valuetronics’ Annual Reports


Based on its current stock price of S$ 0.62, its current dividend yield is 5.69% per annum, which is above its 5-year average of 4.88% per year but below its 10-year average of 7.21% per annum.

VIA’s Verdict 

Overall, Valuetronics had delivered growth in revenues, shareholders’ earnings, and dividend payments to its existing shareholders. They were attributed to its key markets in the United States and China, hence, is influenced by an ongoing US-China trade war. Presently, it is looking to build a new manufacturing facility in Vietnam as a way to export to the United States without incurring 25% tariffs imposed on products that are manufactured in China. 

Its valuation ratio (P/E Ratio and P/B Ratio) are trading below its 5-year average but above its 10-year average. It offers around 5.69% in dividend yields. So, the question remains: ‘Will you invest in Valuetronics at S$ 0.62 a share?’

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