Value Emerges Following Sell-down

• We believe value has emerged following the recent sell-down, and upgrade Valuetronics (SGX:BN2) to BUY from HOLD.
• Risks Valuetronics are exposed to in the electronics manufacturing industry include corruption, workplace safety, fair employment and treatment of employees, and environmental.
• In FY20, Valuetronics complied with applicable laws and regulations on the environment, anti-competitive behaviour and requirements on health and safety.

Strict Anti-corruption/ Confidentiality Stance

• Key governance risks include corruption, conflicts of interest and data confidentiality. Valuetronics has dedicated whistleblowing hotlines and any report is immediately escalated to senior management. Valuetronics also has measures to protect confidential information for both internal and external stakeholders.

Social and Environmental Factors

• Valuetronics is an equal-opportunities employer. In FY20, there were no reported incidents of discrimination. The top 100 suppliers comply with Valuetronics’s strict no-child-labour policy. Valuetronics has achieved ISO 14000 Environmental Management accreditation since 2008, and it plans to obtain the accreditation in 2021 for its leased plant in Vietnam. Suppliers are also encouraged to be accredited with ISO 14000.
• Of the top 100 suppliers that Valuetronics assesses annually, most comply with environmental laws and regulations.

Risks

• We believe value has emerged following a 22% share price correction in Valuetronics' share price since it announced FY20 results in early Jun-20. However, we believe key risk is we may have underestimated the rate of earnings decline in FY21E, or overestimated the rate of recovery in future years.
• Valuetronics observes that due to COVID-19 and heightened US-China trade tension, the FY21E business environment is the toughest it has ever faced.

Source: Maybank Kim Eng Research - 29 Sep 2020