You are here

Broker's take: RHB downgrades Valuetronics to 'neutral' on production delay due to Covid-19 outbreak

FACTORING in the effect the Covid-19 outbreak has on production at Valuetronics Holdings' Chinese factories, RHB Research has downgraded the contract manufacturer to "neutral" and lowered its target price to S$0.76.

As at 11.24am, shares in Valuetronics were trading one Singapore cent or 1.4 per cent lower at 72.5 cents, after 934,000 shares changed hands.

RHB's head of small cap research Jarick Seet expects Valuetronics factories in China to experience one to 1.5 months of downtime due to closures brought about by the Chinese New Year holidays and Covid-19 containment measures by the authorities that followed.

Coupled with labour and potential supply chain issues, he has lowered the FY2020 forecast for Valuetronics by 8 per cent. RHB's profit estimate for FY2020 is now HK$176 million (S$31.5 million), while the revenue estimate is HK$2.57 billion.

Last week, Valuetronics notified its customers of potential delays to scheduled shipments.

That said, Mr Seet noted: "Although these delays are caused by an event beyond the group’s control, it will endeavour to meet the original shipment schedules as much as possible."

Key downside risks to Mr Seet's call include foreign exchange risks, raw material price fluctuations and further earnings downside if the trade war or virus outbreak escalates.

In November 2019, Valuetronics reported a 26.3 per cent rise in bottom line for Q2 FY2020 to HK$56 million from HK$44.3 million for the year-ago quarter. Top line dipped to HK$712.8 million from HK$716.2 million previously.