Brokers’ take: RHB upgrades Valuetronics to ‘neutral’ but expects continued headwinds

RHB has upgraded Valuetronics : BN2 0% to “neutral” from “sell” on a recovering outlook, although it remains cautious of ongoing headwinds brought on by issues such as supply chain and component shortages. 

The research house’s target price on the stock has been left unchanged at S$0.53, which was the counter’s trading price as at 2 pm on Wednesday (Jun 8). 

In his report, RHB analyst Jarick Seet said he believes “the worst may be over” for Valuetronics after the group “(endured) a tough” FY2022, which Seet said is expected. 

The analyst remains cognisant of ongoing issues including higher component prices and increased labour and operating costs, which may contribute to a likely decline of revenue from the consumer electronics (CE) segment. 

As such, he believes Valuetronics’ gross profit margin will continue facing pressure in the near term.  

However, in the longer-term, Seet anticipates the industrial and commercial electronics (ICE) segment to rebound from newly-acquired customers who are likely to contribute positively in 2023. He also noted that the group is currently preparing for the trial production for newly-acquired customers - and therefore believes “all is not lost” despite the expected headwinds. 

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“All in, we still expect the effect to be a net positive as the industrial and commercial electronics segment yields better margins and profitability,” said Seet. 

The analyst also expects the group to continue rewarding shareholders considering continued management share buybacks and a positive past track record.

Meanwhile, Valuetronics’ latest set of FY2022 results exceeded UOB Kay Hian’s (UOBKH) expectations, although the research house said it remained cautious on the stock’s outlook. 

UOBKH has maintained its “hold” call on the stock with an unchanged target price of S$0.52.

In a separate report on Tuesday, analyst John Cheong pointed out that supply chain bottlenecks are expected to last beyond 2022 - on top of other uncertainties including the Covid-19 pandemic and US-China trade tensions.

This has resulted in UOBKH lowering its gross margin assumption slightly by 0.1 percentage point to 13.7 per cent in FY2023, and 13.6 per cent in FY2024. 

Although Cheong is expecting the company’s newly-acquired ICE customers to contribute positively to revenue in FY2023, he thinks FY2022’s revenue rebound in the CE segment will not continue in the following fiscal year due to lower customer forecasts and shortage of components. 

The analyst has raised his overall revenue assumptions by 13 per cent to account for higher average selling prices to pass on extra input costs, resulting in an 8 per cent increase in earnings forecasts for FY2023 to FY2024. 

Cheong also remains positive on Valuetronics’ ongoing expansion plans in Vietnam, which remain on track despite the Covid-19 pandemic. 

Citing the group’s recently-constructed Vietnam campus in Vinh Phuc, the analyst believes this will “serve as a reference” for other customers on the readiness and scalability of the project.