Valuetronics Holdings

[yewkim]

to buy into a manufacturing company like this, it is best to estimate a conservative cash flow and see how much we should be paying for it.

lets explore the non-guaranteed upside and let it be a bonus but try to pay close to the guaranteed portion.

I agree with you totally. This is a wise move. I learn a great thing today from a good post.

Thanks.

[FatBoi]

to buy into a manufacturing company like this, it is best to estimate a conservative cash flow and see how much we should be paying for it.

lets explore the non-guaranteed upside and let it be a bonus but try to pay close to the guaranteed portion.

Hi Drizzt, as usual sensible words.

Given that past years annual reports may not be a good starting point with licensing business clouding the core, and that FY14 1H figures to date do not lend a sustainable set of figures to base our estimation on (given the aggressive or worrying working capital mgmt), how should we go about estimating a conservative cash flow?

Also just as a math exercise, I have a set of figures from Annual Report 2012.

Op CF = HKD 59 mil
Capex = HKD 18 mil
FCF = HKD 41 mil or S$6.6 mil

Since mkt cap ~ S$86 mil, price-to-FCF multiple is around 13. Not very enticing yea?

[dzwm87]

Valuetronics – 2QFY14 Results – Non-rated note
(By Ken Ang and Benjamin Ong)

Valuetronics reported NPAT of HKS$39.6m, up 18.9% q-q, and 14.8% y-y (excluding loss from discontinued operations in 2QFY13). This was due to a few factors, including an increase in revenue (3.4% q-q, 6.1% y-y) from a broad base of customers, while Net profit margins improved to 6.3% (1QFY14: 5.4%, 2QFY13: 5.8%) due to an increase in contributions from the higher margin customers. Valuetronic’s balance sheet remains healthy with zero debt financing with a cash balance of HK$288.7m. Previous dividend yields range from 4.7% (FY07) to highs of 11.9% (FY12).

Key takeaways from meeting with management

85% of total revenue comes from core customers. Of this, 65% of total revenue comes from a certain large MNC, for which Valuetronics manufactures products in two of their business units. While there is concentration risk, most of these customers have a long-term relationship with Valuetronics. These customers also provide more stable recurring revenue, ignoring some seasonality and q-q volatility.
Revenue growth potential includes 1) Higher sale volume from a new mass market product being launched by the large MNC. 2) Growth of new customers in the higher margin Industrial and Commercial Electronics segment. Valuetronics highlighted that two new customers have relocated their productions to Valuetronics’ premises and they contributed 4%-5% of total revenue for 1HFY14. Vacant factory space continues to be ample at 40,000 sqf.
Rising PRC operator costs (staff expense) is a constant concern, but management has been able to minimise impact through higher productivity, including process automation and lean manufacturing. Management guides that operator costs in calendar year 2013 increased >20%, and expect another 10% increase in calendar year 2014. This trend is likely to continue for a while, based on the targeted wage levels set by the Central Government a few years ago. Management is able to tackle staff expense increases through improving productivity levels. Higher sales volumes, and continued increase in new customers are also expected to help mitigate the higher operator costs.
Management appears upbeat, and expects Gross profit margins to continue in the range of 11% - 13%, and Net profit margins of 5% - 6% despite headwinds in the macroeconomic environment.

From Philips Securities' morning commentary

[Gaudente]

further up to 0.25 ... might be some roast behind the smoke ?

[orangetea]

further up to 0.25 ... might be some roast behind the smoke ?

its the mickey mouse 1 lotter buy up at 24.5, 25c at every 2~3min (algo trading?)

likely the roadblock at 25c is to force sellers to divest at 24.5c

Some human buyer are buying at 20-50lots for momentum?
probably 25.5/26c is still possible?

[NTL]

Good to see this company finally move. Hope it won't just drop after a while. That seems to happen all the time.

[orangetea]

as a conservative estimate
Suppose 3 min per buy, buyer has budget of 150 single lotter buys from 9.25m46 am to 5pm
average 24.5c...

his budget for today is $36,750.00

[NTL]

He will need 10days to clear the barrier at 25c...

[Drizzt]

to buy into a manufacturing company like this, it is best to estimate a conservative cash flow and see how much we should be paying for it.

lets explore the non-guaranteed upside and let it be a bonus but try to pay close to the guaranteed portion.

Hi Drizzt, as usual sensible words.

Given that past years annual reports may not be a good starting point with licensing business clouding the core, and that FY14 1H figures to date do not lend a sustainable set of figures to base our estimation on (given the aggressive or worrying working capital mgmt), how should we go about estimating a conservative cash flow?

Also just as a math exercise, I have a set of figures from Annual Report 2012.

Op CF = HKD 59 mil
Capex = HKD 18 mil
FCF = HKD 41 mil or S$6.6 mil

Since mkt cap ~ S$86 mil, price-to-FCF multiple is around 13. Not very enticing yea?

just got home but a bit lost track of the figures. what i did is a conservative estimatation of how much fcf is required to pay a conservative 6.5% and use that as a basis. if i remember correctly even with the writeoffs, they can conservatively pay that amount of div (i remember its 29-30 mil)

the key question is how much of cash is working capital. assuming that the license business is the one cause an esclaation in cash conversion cycle, a return to old business should improve it. i heard that recently this have been with higher receviables so perhaps i am wrong there.

if cash conversion cycle have always been low, then we should deduct away the cash position and calculate the price to FCF.

13 does sound rather fair to abit dear. i will be pretty happy with 10 times price to FCF to be fair.

if price isn't very far from this article price, this may still be valid > http://www.investmentmoats.com/money-man...situation/

[GFG]

to buy into a manufacturing company like this, it is best to estimate a conservative cash flow and see how much we should be paying for it.

lets explore the non-guaranteed upside and let it be a bonus but try to pay close to the guaranteed portion.

Hi Drizzt, as usual sensible words.

Given that past years annual reports may not be a good starting point with licensing business clouding the core, and that FY14 1H figures to date do not lend a sustainable set of figures to base our estimation on (given the aggressive or worrying working capital mgmt), how should we go about estimating a conservative cash flow?

Also just as a math exercise, I have a set of figures from Annual Report 2012.

Op CF = HKD 59 mil
Capex = HKD 18 mil
FCF = HKD 41 mil or S$6.6 mil

Since mkt cap ~ S$86 mil, price-to-FCF multiple is around 13. Not very enticing yea?

just got home but a bit lost track of the figures. what i did is a conservative estimatation of how much fcf is required to pay a conservative 6.5% and use that as a basis. if i remember correctly even with the writeoffs, they can conservatively pay that amount of div (i remember its 29-30 mil)

the key question is how much of cash is working capital. assuming that the license business is the one cause an esclaation in cash conversion cycle, a return to old business should improve it. i heard that recently this have been with higher receviables so perhaps i am wrong there.

if cash conversion cycle have always been low, then we should deduct away the cash position and calculate the price to FCF.

13 does sound rather fair to abit dear. i will be pretty happy with 10 times price to FCF to be fair.

if price isn't very far from this article price, this may still be valid > http://www.investmentmoats.com/money-man...situation/

Hi,
I know the CCC has been discussed in the earlier part of the thread, but I still cannot figure out how you guys can calculate the CCC from the statements itself.
CCC= DIO + DSO -DPO

These are all in days. You can see how much (quantity) worth of inventory is outstanding, you can even calculate the difference from the last quarter, but how would you determine how many days the inventory is outstanding, bearing in mind that new inventory would be purchased, older ones will be sold etc.
Perhaps someone can elighten me here.

Also, I just want to add about the receivables.
Yes, the receivables have been jumping up. The latest receivable of 627Mil HKD is a huge increase. However, I think it is not accurate to look at the receivables alone, neither should it be seen on a quarterly basis.

From FY 10 - FY 13, the receivables to revenue ratio has been:
0.241
0.219
0.222
0.218

This has been pretty consistent. The latest quarterly ratio is unusually large, but its more accurate to look at it from an annual perspective.

Also, I did a comparison of its receivables with another large manufacturing company (Foxconn) and found that their receivables to rev ratio is pretty much similar to the above figures (between 0.2 - 0.25)

So although the receivables are worrying, on a wider context, it may be expected and nothing unusual. I would keep an eye on the receivables for the final 4th quarter though.

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