Company Background
Valuetronics Holdings Ltd (VALUE) was established in 1992 and listed on SGX Mainboard in 2007. VALUE is an electronics manufacturing services (EMS) provider with 80% of revenue from industrial and commercial electronics (ICE), and 20% from consumer electronics (CE). EMS services that VALUE provides include design, printed circuit board assembly (PCBA), full box build or module assembly and manufacturing of plastic and metal components. ICE products include industrial and commercial printers, industrial cold chain temperature monitors, automobile data and media connectivity modules and IP phones. Meanwhile, consumer products are largely PCBA work on smart lighting, electronic toothbrushes, and shavers. VALUE gross margins of 13% are ahead of the industry’s 8% due to the larger contribution of low-volume and high-mix ICE products. VALUE has two manufacturing facilities – 110,000 sqm in Huizhou City, Guangdong, China and a 52,541 sqm plant in Vinh Phuc Province, Vietnam.
Investment Highlights
We initiate coverage with a BUY rating and a target price of S$0.61. Our target price is based on 11x PE FY24e, in-line with industry valuations.
REVENUE
VALUE revenue peaked in FY18 at HK$2.85bn. Since then, the revenue has declined by 29% over five years to HK$2bn in FY23 (Figure 4). Revenue suffered from multiple factors namely customers de-risking out of China’s supply chain following the Trump administration’s imposition of trade tariffs. Other drivers of the weakness were the pandemic causing component shortages and travel restrictions affecting business development activities with potential customers. To meet customer demand for a new location, VALUE started construction of its new Vietnam factory in July 2020. The factory was completed in 2022.
Revenue is split into two product categories:
EXPENSES
VALUE expenses are largely raw material and consumables (76%), staff cost (16%), depreciation (3%) and others (5%) – Figure 5. As a percentage of sales, staff cost has been climbing since 2018, from 12.3% to 14.9% currently. Rising wage pressures in China have been the major driver. Labour cost in China is expected to be stable with the general weakness in the export sector. Depreciation as a percentage of revenue has doubled from 1.4% to 2.8%, following the expansion of the plant in Vietnam.
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Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.
He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.
