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Valuetronics Holdings Limited Delivers Growth In Its First Quarter Earnings

Valuetronics Holdings Limited (SGX:BN2), a Hong Kong-based company that provides a range of electronics manufacturing services, recently released its earnings update for the first quarter of its 2019 financial year. As with other manufacturing companies with manufacturing plants in China, Valuetronics’ share price had taken a hit as investors are cautious about the impact of the ongoing trade war between China and the United States.

However, Valuetronics business continues to remain resilient, despite the recent introduction of 25% tariffs of US$50 billion worth of China imports to the United States. Moreover, the company’s management has expressed optimism over the near future. Here is a quick summary of how Valuetronics performed over the three-month period ended 30 June 2018, and what management had to say about Valuetronics’ prospects for the rest of the year.

The numbers

Revenue for the quarter rose 1.2% to HK$704 million compared to HK$695.7 million in the corresponding period last year. Gross profit was down 1.5% to HK$102.8 million, but net profit attributable to owners increased 1.9% to HK$49.7 million.

Source: Valuetronics FY2019 Q1 Earnings Press Release

Below is a breakdown of revenue by segment:

Source: Valuetronics FY2019 Q1 Earnings Press Release

The lower revenue contribution from its consumer electronics segment was more than offset by strong performance by the industrial and commercial electronics segment.

In addition to its earnings growth, the group maintained a healthy financial position with cash balances of HK$757.2 million, up from HK$671.1 million on 31 March 2018, with no debt. It had a net asset value of HK$1.11 billion, up from HK$1.06 billion on 31 March 2018.

Valuetronics reported free cash flow of HK$83.5 million in the reporting quarter, compared to negative free cash flow last year.

What’s behind the numbers?

The lower revenue from its consumer electronics segment was largely due to a slowdown in demand from its smart lighting business. This was anticipated and highlighted by management in the last quarter earnings update.

On the other hand, the strong performance by the industrial and commercial electronics segment was largely due to healthy performance in the connectivity modules used in the automotive industry.

The higher net profit was due in part to higher net exchange gains of HK$5.4 million. Excluding this, net profit would have been down slightly.

Going forward

The group’s management said that Valuetronics’ smart lighting customer indicated that sales were weak due to its trade partners winding down inventories to more normalised levels. However, the customer also stated that it would be expecting more product sales in the remainder of the year, and Valuetronics expects to ride on this recovery for its consumer electronics business.

In the industrial and commercial electronics (ICE) segment, management said that “automotive products are expected to remain as the primary driver for the ICE segment’s growth with increasing demand for in-car connectivity.”

Management also had this to say about the global trade tensions:

“As a manufacturer with global sales, Valuetronics currently operates in an uncertain macro-economic environment, caused by geopolitical and trade tensions and also supply chain challenges such as rising raw material prices and longer procurement lead times. Nevertheless, the Group will continue to advance by maintaining its focus on operational improvements and working proactively with customers in order to navigate this dynamic macro-environment.”

Valuations

At the time of writing, shares of Valuetronics exchanged hands at S$0.74, representing a price-to-book ratio of 1.5 and an undemanding price-to-earnings ratio of 7.5.

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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.