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Valuetronics Holdings Limited Delivers Strong Growth In Its Fiscal Year 2018

Valuetronics Holdings Limited (SGX:BN2) is an integrated electronics manufacturing services provider that is headquartered in Hong Kong. The company was founded back in 1992 and offers a range of services including design, engineering, and supply chain support.

The company was featured by my colleague, Chong Ser Jing, as one of the 30 best stocks to own in Singapore for 2018 based on the Magic Formula investing strategy that was developed by investor Joel Greeblatt.

With this in mind, I thought it may be useful to have a quick rundown on how Valuetronics performed in its last financial quarter. The company’s latest earnings update was for the fourth quarter of its fiscal year ended 31 March 2018 (FY2018). Here are 10 important highlights from the update:

1. Valuetronics’ revenue for the fourth quarter of FY2018 came in at HK$644 million. The company splits its revenue into two segments: Consumer Electronics, and Industrial & Commercial Electronics. The Consumer Electronics segment contributed HK$300.1 million in revenue, while the Industrial & Commercial Electronics segment achieved revenue of HK$343.9 million. Valuetronics’ FY2018 fourth quarter revenue was down 18% quarter-on-quarter, and 1.2% year-on-year.

2. However, on a full-year basis, the company’s revenue increased by 25.4% to HK$2.85 billion from HK$2.27 billion. Gross profit ballooned 21.3% to HK$414.6 million, and net profit increased by 32.9% to HK$204.7 million. This was on the back of strong performances from the company over the first nine months of FY2018.

3. Below is a graph showing the revenue trend of Valuetronics over its last six fiscal years:


Source: Valuetronics FY2018 earnings presentation

4. Diluted earnings per share for FY2018 rose 30.4% to HK$0.476 from HK$0.365 in FY2017. This was on the back of Valuetronics’ strong revenue growth for the year.

5. Valuetronics’ management stated that the company’s higher top line in FY2018 was driven by broad-based growth in both the Consumer Electronics and Industrial & Commercial Electronics segments. Revenue improvement at the former was largely due to consumer lifestyle products and smart LED products with Internet of Things (IOT) features. In the ICE segment, there was an increase in printer demand and connectivity modules used in the automotive industry.

6. As of 31 March 2018, Valuetronics had a strong balance sheet that carried HK$671 million in cash and equivalents, and zero debt. Shareholders’ equity totalled HK$1.07 billion. This was an improvement of HK$127 million, or 13.5%, from the previous year. Valuetronics had a net asset value per share of HK$2.50 at the end of FY2018.

7. Cash flow from operations was HK$63.5 million for the year. The company, however, spent HK$167.8 million on investments (HK$116.3 million was on short-term bank deposit investments). This resulted in negative free cash flow of HK$103.5 million. However, excluding the short-term bank deposits, Valuetronics would have had positive free cash flow of HK$12.8 million.

8. Valuetronics declared a final ordinary dividend of HK$0.15 per share, and a special dividend of HK$0.05 per share. Together with the interim dividend of HK$0.07 per share, the company’s total dividend for the year was HK$0.27 per share. This is 34% higher than FY2017’s dividend, and also represents a safe dividend payout ratio of just 57%.

9. On the outlook for FY2019, Valuetronics’ management said:

“Like most manufacturing with global sales, we are operating in an uncertain macro-economic environment caused by geo-political and trade tensions. The Group continues to see supply chain challenges, such as rising raw material prices and extended procurement lead times. The Group will continue to navigate the dynamic macro-environment by focusing on operational improvements and working proactively with customers.”

10. At the time of writing, shares of Valuetronics are exchanging hands at S$0.76 each. Based on current exchange rates, this translates to a price-to-earnings ratio of just 9.4, a price-to-book ratio of 1.78, and a healthy trailing dividend yield of 6.0%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.