Asked on 09 May 2019
Discuss anything about share price, dividends, yield, ratios, fundamentals, technical analysis and if you would buy or sell this stock on the SGX Singapore markets. Do take note that the answers given by our members are just your opinions, so please do your own due diligence before making an investment!
Source: Valuetronics Holdings Ltd Annual Report 2018
Valuetronics Holdings Limited is an integrated electronics manufacturing services provider. They try to offer a competitive and broad combination of Design, Engineering, Manufacturing, and Supply Chain Support services for electronic and electro-mechanical products.
Source: Valuetronics Holding Limited Annual Report 2018
Revenue, profits and profitability seem to have risen over the past 5 years, which is quite a healthy sign. This is a testament to the growing demand of the company's services, as well as how the firm has been able to become more efficient which allowed it to cut costs.
This growth has been attributed to the consumer lifestyle products and smart LED lighting products with Internet-of-Things features in the Consumer Electronic segment, and the increase in demand from some of the Industrial and Commercial Electronics customers. A major portion of this came from their fast-growing in-car connectivity modules that are used in the automotive industry, as well as printers.
There seems to be an even split between consumer electronics and industrial and commercial electronics. This means that there is less concentration risk on one particular segment.
The company's balance sheet looks quite healthy as well. With good short-term liquidity with a large amount of cash balance on hand. They also have a decent amount of liabilities with no debt!
This is where I think the firm's financials weren't that strong. Since the firm is capital intensive, a lot of cash was needed for capital expenditures. This had resulted in a Free Cashflow that was negative, despite operating cash flows were positive. Another reason for the weak cash flows is due to their working capital management as well, where a lot of cash had been tied up in receivables and inventory. The positive aspect is that the firm does not have any debt to pay off, and they have a high cash balance.
The efficiency ratios were probably what led to this stock being on Motley Fool's radar! Their ROA, ROE, ROCE and ROIC all seem quite high. Their ROIC is especially high because of their extremely high cash balance. This shows that the firm is actually quite efficient in using the capital invested in the business.
Compared to other firms, Valuetronics seems to be valued cheaply. This again, is what led to this stock being picked up by the Magic Formula. However, there are several key risks that the firm might be facing that I will touch on soon. Such reasons could be why the shares are priced at this cheaply. Another reason could be the weak cash flows the firm is facing. This wasn't picked up by ROCE if the denominator you use is "Assets-Liabilities". All in all, it still seems possible that the stock might be undervalued.
Source: RELEX Solutions
The firm faces some supply chain challenges. For example, there is a shortage of components because of an increase in demand and slow expansion in supplier-capacity. To address this, the firm is leveraging on its supplier relations and working closely with customers. This includes enlisting the customer’s cooperation to build buffer stock reserves for affected components and to obtain their authorisation to order components in advance.
Source: Mekong Eye
There is also the shortages of human capital. This has been caused by higher demand for skilled labour from other Chinese companies, as well as by higher standards of living which demand higher wages. For example, the One Belt One Road initiative has caused labour supply to be tighter, as human capital is needed elsewhere.
The US-China trade war has also impacted their business greatly. With Trump hitting back China again this morning, trade tensions don't seem to budge.
Share Price Performance
Source: Yahoo Finance
Compared to the STI, the firm's share prices have actually underperformed for the past year, as seen from the Chart. This was most likely caused by several operational issues that had arisen over the past year. However, over the past 5 years, the firm has made returns of 110%, outperforming the STI by a huge margin. This long-term performance is likely due to the strong fundamentals that the business possesses. It is currently trading at 74% of their 52-week high.