2HFY21 Beat, But Expect Challenging FY22E; HOLD

• Valuetronics (SGX:BN2)’s 2HFY21 PATMI of HKD95.6m (+28% y-o-y) was ahead of our estimates, largely due to stronger than expected ICE momentum in 4QFY21.
• Although Valuetronics expects FY22 to be more challenging than FY21, we raise FY22-23E earnings per share forecast by 10-13%, as we believe the worst of customer allocation losses may be over.
• Our target price of S$0.60 for Valuetronics is based on 10.6x FY22E P/E (30% discount to SG-peers), from 10x blended FY21-22E previously. Maintain HOLD.

ICE Strength Offset CE Weakness in 2HFY21

• Revenue rose 20.2% y-o-y to HKD1.19b, as industrial and commercial electronics (ICE) rose 36% y-o-y, benefitting from logistics and printing customers on the back of the COVID-19 driven e-commerce boom. This was also aided by the delayed switch over of the automotive customer to a new vendor for the US allocation of products.
• In contrast, consumer electronics (CE) was affected by the customer’s switch over to another supplier in ASEAN for its US-allocation, as well as weaker end-market sales. Gross margin improved 1ppt y-o-y to 16.9% due to favourable shift in product mix.

Worst of Allocation Losses Could be Over

• Valuetronics is expecting significantly lower FY22E expansion in Vietnam, we think the worst of customer allocation losses could be over, and this is reflected in our increase of FY22-23E earnings per share.

Vietnam Expansion on Track

• The construction of the Vietnam campus remains on lingering uncertainties from components shortages and COVID-19 demand risk.

Source: Maybank Kim Eng Research - 31 May 2021