Valuetronics Holdings

[Drizzt]

Fair value $0.195 leh...

If EPS is around 30 HK cents, dividend payout of 40% EPS will be around 12 HK cents which is around 2 SG cents. That is 10% dividend rate!

Mr Market don't like, but I like.

perhaps you can highlight the sustainability of their cash flow over hardship.

Please elaborate. Thanks.

how would you term their cash flow going by historical experience with a ODM and OEM manufacturer. do you see a drop soon ?

For this, I do not know. But with their cash in hand, very likely they will not required to borrow money anytime soon unless there is a huge order coming in. Then there will be an increase in inventory, increase in receivable and increase in payables. But, that will be good news, isn't it?

---

May I ask what is the economic moat of this company ?
What sets it apart from its competitors?

Who are their nearest competitors?

Revenue seems to have reached a plateau at $2 bil (HK Dollar).
What are the company's strategies to grow it further?

tks.

I afraid that the company don't have any real economic moat to talk about. From my knowledge, their key customers are with them for years, so unless they mess up their own show, likely they will continue to stay with them. So they will grow along with their customers, just like your favourite company. is that consider as economic moat? I don't know.

There are tonnes of OEMs and ODMs in China and other parts of the world, so all will be their competitors. So it back to the above sentence.

As for growth, 2 of their customers are moving their production to Valuetronics factory. This should be positive to them, and should see some result in Q1. They are also looking for new customers in US from various channels. Whether these will bear fruits or not, I shall not comment.

they could be like UMS, look for customers but end up not being able to secure good ones and just burn capital like the licensing business.

we are not worried currently about the dividends, and lets leave existing cash holding aside.

What are the EMS providers that we can compare Valuetronics to in terms of valuation and operations?

Your cash of 221 mil can easily be taken down 100 mil in 1 year due to inventory and receivables buildup which may be written off.

2 bad years and there goes your huge cash hold.

Note that their receivables and inventory size is that big. its not a pluck of numbers out of thin air.

[felixleong]

for manufacturing very hard to compare apple to apple, since their products will be different and therefore the margins and volatility in revenues will be different too

valuetronics have never ever reported a full year loss before, be it the financial crisis or the Europe recession they are still doing fine, the 200+ mil cash is a strong war chest in case of any world wide recession to tank any slow down in demand

if a small cap company is too much for your risk appetite, u may wanna look at mid cap stocks like venture which also does manufacturing but very different from valuetronics, its also net cash position and pays a decent yield

cheers

[Stockerman]

I don't have any favourite counters. I always hold the view that one should be prepared to lose everything in any counters bought, as there are always too many factors beyond control. No need for attachment to any counters. U cannot bring them with you when u leave this world

U mentioned that there are so many OEMs and ODMs in China. Are they in the same segment as Valuetronics? How big is Phillips in the LED segment in on this Earth?

Just to give a case in point. Qingmei is a sport shoe maker with tremendous growth in the initial years but later degenerated into oblivion in the "over-crowded sector" because there is no economic moat. (not vested in Qingmei)

This explains why the low P/E valuation for Valuetronic is very justified. In fact, one might question whether the P/E should even be adjusted lower. It is no different from some of those mainland S-chips...

Fair value $0.195 leh...

If EPS is around 30 HK cents, dividend payout of 40% EPS will be around 12 HK cents which is around 2 SG cents. That is 10% dividend rate!

Mr Market don't like, but I like.

perhaps you can highlight the sustainability of their cash flow over hardship.

Please elaborate. Thanks.

how would you term their cash flow going by historical experience with a ODM and OEM manufacturer. do you see a drop soon ?

For this, I do not know. But with their cash in hand, very likely they will not required to borrow money anytime soon unless there is a huge order coming in. Then there will be an increase in inventory, increase in receivable and increase in payables. But, that will be good news, isn't it?

---

May I ask what is the economic moat of this company ?
What sets it apart from its competitors?

Who are their nearest competitors?

Revenue seems to have reached a plateau at $2 bil (HK Dollar).
What are the company's strategies to grow it further?

tks.

I afraid that the company don't have any real economic moat to talk about. From my knowledge, their key customers are with them for years, so unless they mess up their own show, likely they will continue to stay with them. So they will grow along with their customers, just like your favourite company. is that consider as economic moat? I don't know.

There are tonnes of OEMs and ODMs in China and other parts of the world, so all will be their competitors. So it back to the above sentence.

As for growth, 2 of their customers are moving their production to Valuetronics factory. This should be positive to them, and should see some result in Q1. They are also looking for new customers in US from various channels. Whether these will bear fruits or not, I shall not comment.

[kopihothot]

cannot compare V as s-chip.....there are a few differences - philip brand is earth's largest in led (currently as stated by OCBC's report), good div and got profits over all the years, one can easily buy and try their products at fairprice and this year's very low PE is their impairment PE (maybe without impairment the PE can be even better).

So, maybe can link their economic value to philip's led biz to serve as an estimate.

vested as well.

I don't have any favourite counters. I always hold the view that one should be prepared to lose everything in any counters bought, as there are always too many factors beyond control. No need for attachment to any counters. U cannot bring them with you when u leave this world

U mentioned that there are so many OEMs and ODMs in China. Are they in the same segment as Valuetronics? How big is Phillips in the LED segment in on this Earth?

Just to give a case in point. Qingmei is a sport shoe maker with tremendous growth in the initial years but later degenerated into oblivion in the "over-crowded sector" because there is no economic moat. (not vested in Qingmei)

This explains why the low P/E valuation for Valuetronic is very justified. In fact, one might question whether the P/E should even be adjusted lower. It is no different from some of those mainland S-chips...

perhaps you can highlight the sustainability of their cash flow over hardship.

Please elaborate. Thanks.

how would you term their cash flow going by historical experience with a ODM and OEM manufacturer. do you see a drop soon ?

For this, I do not know. But with their cash in hand, very likely they will not required to borrow money anytime soon unless there is a huge order coming in. Then there will be an increase in inventory, increase in receivable and increase in payables. But, that will be good news, isn't it?

---

May I ask what is the economic moat of this company ?
What sets it apart from its competitors?

Who are their nearest competitors?

Revenue seems to have reached a plateau at $2 bil (HK Dollar).
What are the company's strategies to grow it further?

tks.

I afraid that the company don't have any real economic moat to talk about. From my knowledge, their key customers are with them for years, so unless they mess up their own show, likely they will continue to stay with them. So they will grow along with their customers, just like your favourite company. is that consider as economic moat? I don't know.

There are tonnes of OEMs and ODMs in China and other parts of the world, so all will be their competitors. So it back to the above sentence.

As for growth, 2 of their customers are moving their production to Valuetronics factory. This should be positive to them, and should see some result in Q1. They are also looking for new customers in US from various channels. Whether these will bear fruits or not, I shall not comment.

[dzwm87]

May I ask which part of Philip's LED lightbulb is Valuetronics manufacturing? And how many manufacturers does Philip engage? One thing for sure, Valuetronics is not their exclusive supplier.

Valuetronics' business is not a quality one at all and they have no moat. Margins are going to be (1) squeezed by their customers since the latter has the bargaining power (esp. Philips; what would you do if you were Philips?) and (2) increasing labor cost in China. Yes, they mentioned about automation but this is an overplayed theme. Manufacturing will be labor-intensive no matter how "automated" it gets.

Yes, they have 2 new customers who will shift their production to them. Qualitatively-speaking, this factor sells well but quantitatively, how much can they contribute? What if it's only less than 10% of revenue?

That being said, FY14 will be interesting to see how the market react once they report a full year of non-impairment losses from their licensing business. This is not a one-bagger play, probably only a +30% in the blue sky scenario.

[felixleong]

Yeah like I said, its has no moat at all, its a risky counter but the valuations are just tooo cheap
4 times earnings, where to find?

I think value buddies that are vested in this counter are not really looking for capital gains
Its more for the high dividends ^^

[Drizzt]

for manufacturing very hard to compare apple to apple, since their products will be different and therefore the margins and volatility in revenues will be different too

valuetronics have never ever reported a full year loss before, be it the financial crisis or the Europe recession they are still doing fine, the 200+ mil cash is a strong war chest in case of any world wide recession to tank any slow down in demand

if a small cap company is too much for your risk appetite, u may wanna look at mid cap stocks like venture which also does manufacturing but very different from valuetronics, its also net cash position and pays a decent yield

cheers

felix for a small company, its payout gives me more confidence then venture. venture is struggling with 100% payout!

but yes i read you on the profit end. very well managed.

but we have to look to see if for the industry it is a particular good 10 year patch (that is havent hit their black swan yet)

the ceo is very tactful in that the official communication put that margins will be affected due to customers demand, this is going to have ups and downs...

---

I don't have any favourite counters. I always hold the view that one should be prepared to lose everything in any counters bought, as there are always too many factors beyond control. No need for attachment to any counters. U cannot bring them with you when u leave this world

U mentioned that there are so many OEMs and ODMs in China. Are they in the same segment as Valuetronics? How big is Phillips in the LED segment in on this Earth?

Just to give a case in point. Qingmei is a sport shoe maker with tremendous growth in the initial years but later degenerated into oblivion in the "over-crowded sector" because there is no economic moat. (not vested in Qingmei)

This explains why the low P/E valuation for Valuetronic is very justified. In fact, one might question whether the P/E should even be adjusted lower. It is no different from some of those mainland S-chips...

perhaps you can highlight the sustainability of their cash flow over hardship.

Please elaborate. Thanks.

how would you term their cash flow going by historical experience with a ODM and OEM manufacturer. do you see a drop soon ?

For this, I do not know. But with their cash in hand, very likely they will not required to borrow money anytime soon unless there is a huge order coming in. Then there will be an increase in inventory, increase in receivable and increase in payables. But, that will be good news, isn't it?

---

May I ask what is the economic moat of this company ?
What sets it apart from its competitors?

Who are their nearest competitors?

Revenue seems to have reached a plateau at $2 bil (HK Dollar).
What are the company's strategies to grow it further?

tks.

I afraid that the company don't have any real economic moat to talk about. From my knowledge, their key customers are with them for years, so unless they mess up their own show, likely they will continue to stay with them. So they will grow along with their customers, just like your favourite company. is that consider as economic moat? I don't know.

There are tonnes of OEMs and ODMs in China and other parts of the world, so all will be their competitors. So it back to the above sentence.

As for growth, 2 of their customers are moving their production to Valuetronics factory. This should be positive to them, and should see some result in Q1. They are also looking for new customers in US from various channels. Whether these will bear fruits or not, I shall not comment.

think valid points. same as UMS. Low PE probably depicts the speed of change in this industry.

Thing is not much is talked about their end products in the annual (perhaps i am cock eye cannot see) or talk on specific competitors

---

May I ask which part of Philip's LED lightbulb is Valuetronics manufacturing? And how many manufacturers does Philip engage? One thing for sure, Valuetronics is not their exclusive supplier.

Valuetronics' business is not a quality one at all and they have no moat. Margins are going to be (1) squeezed by their customers since the latter has the bargaining power (esp. Philips; what would you do if you were Philips?) and (2) increasing labor cost in China. Yes, they mentioned about automation but this is an overplayed theme. Manufacturing will be labor-intensive no matter how "automated" it gets.

Yes, they have 2 new customers who will shift their production to them. Qualitatively-speaking, this factor sells well but quantitatively, how much can they contribute? What if it's only less than 10% of revenue?

That being said, FY14 will be interesting to see how the market react once they report a full year of non-impairment losses from their licensing business. This is not a one-bagger play, probably only a +30% in the blue sky scenario.

and there is the issue because a lot is not provided in the annual report. i suppose i have not finish evaluating, but the margins after they reclass the segment seem to indicate alot of gross margin contraction.

it will be good to view it at a clean slate

wonder if they are due for a result release soon.

[kopihothot]

May I ask which part of Philip's LED lightbulb is Valuetronics manufacturing?

Margins are going to be (1) squeezed by their customers since the latter has the bargaining power (esp. Philips; what would you do if you were Philips?)

to my best knowledge and projections without proof from their mgmt:

philip produces the led core, v takes care of the rest. Also, led is becoming mainstream recently, vol is likely to increase.

margins will definitely come down as products matured but this is mitigated by increased vol. Their mgmt also mentioned that they will only do profitable orders. The shifting of customers' production to their sites, according to the mgmt, margins will be satisfactory, if not better.

also, v is now expanding in their industrial products.

[NTL]

May I ask which part of Philip's LED lightbulb is Valuetronics manufacturing?

Margins are going to be (1) squeezed by their customers since the latter has the bargaining power (esp. Philips; what would you do if you were Philips?)

to my best knowledge and projections without proof from their mgmt:

philip produces the led core, v takes care of the rest. Also, led is becoming mainstream recently, vol is likely to increase.

margins will definitely come down as products matured but this is mitigated by increased vol. Their mgmt also mentioned that they will only do profitable orders. The shifting of customers' production to their sites, according to the mgmt, margins will be satisfactory, if not better.

also, v is now expanding in their industrial products.

From what I know, the management will try to keep the Gross Margin in double digits, which I believe will be profitable to them. So when Gross Margin goes below that, it will be a warning sign.

From reports, LED lightings is expected to reach a market share of 50% in 2015 and could reach 90% in 2020 of all lighting products, and that should fare well for Valuetronics. Philips market share as of end of Dec 2012 is close to 10% based on a report, and it constitute 24% of Philips lighting sales, up from 14% previous year. The growth should do well for Valuetronics, as long as they retain Philips as their customer, even if they are not the sole contractor.

Not everyone will squeeze their contractors, as they understand the need for them to survive in order to support them. If Philips really squeeze their contractors too much, they may end up have to produce the lightings themselves as the contractors start to close shop.

I agree that the annual report does not provide much insight to the products, so take a look at the webinar in a previous post by Ray168. I repost the link here for those interested.

http://www.youtube.com/watch?v=rFc8XqSyq...r_embedded

[Drizzt]

it says the video is unavailable