Brokers' take

Valuetronics Holdings I NEUTRAL (downgrade) Feb 14 close: S$0.71 Target price: S$0.78 RHB Research, Feb 14

Valuetronics reported a decent Q3 FY19, with profit after tax and minority interests (PATMI) rising 2.6 per cent to HK$59.7 million (S$10.3 million) and gross profit margin widening to 15.9 per cent from 14.4 per cent. However, its smart lighting segment will likely continue to face pressures. That, on top of the company missing out on US orders for new-generation smart lighting - which forms a significant chunk of its entire smart-lighting orders - leads us to believe revenue will be impacted by 7-10 per cent. We therefore trim FY2020F PATMI by 5 per cent, which results in a lower discounted cash flow-backed target price. As its upside is now less than 10 per cent, we also downgrade our call to "neutral".

We expect management to continue rewarding shareholders with respectable dividends due to its strong net cash position and cash flow generation... Investors can hold the stock for upcoming year-end dividends in the short- to mid-term. Key risks are an economic slowdown, forex risks, raw material price fluctuations and further earnings downside if the US-China trade war escalates.