Valuetronics Holdings

[wahkao]

this industry is a bit cyclical, its hard to predict earnings and cash flow
currently its on a uptrend because of the recovery in Europe, Philips is doing very well and their sales rebounded.

a good strategy to play along this uptrend is to ride up along with the uptrend and get ready to abandon ship when the profits start falling

what do you all think?

[GFG]

Recently a lot of discussion on s chips. I would like to ask. What if valuetronics's cash is not real? What if its real but they will never pay the extra cash to shareholders? In such a case how would your valuations be different?

Any fundamental analysis is based on the premise that the financials are relatively accurate and reliable.

If its not real.... all wheels are off! Sell at whatever price.

[GFG]

this industry is a bit cyclical, its hard to predict earnings and cash flow
currently its on a uptrend because of the recovery in Europe, Philips is doing very well and their sales rebounded.

If u wanna value via cash flow of valuetronics, u can take the recent 5 year numbers or whatever long u think one cycle is to get the average yearly cash flow or earnings, you then might wanna pay anything from 5 to 10 times that multiple for this business.

I use book value because its simple to understand, it doesn't make sense to pay above book value for a mediocre business. It may make sense to pay a few times book value for superb business with wide and deep moats such as Coke or See's Candy, but for competitive industry with low margins it can't never be wise to pay too much.

If I really had to to value via cash flow... I would say a fair value for valuetronics would be around 8-10 times free cash flow, I would buy at 5 times... (need some margin of safety)
You want to buy it cheap because of certain risks and downsides such as
1) The major customer Phillips shifting business to other manufacturers to save cost
2) Management blowing cash away in expensive acquisition
3) Management diluting shareholder's stake by giving themself free stock options every year (they have been doing this for a long time)

The FCF is quite variable, here are the figures in HKD from FY10-FY13
1,095
-35,521
195,268
41,248

Of course you can take the average over a certain period of time but if you want to use FCF you gotta bear in mind its a multi year valuation and in the short term, within 1 yr or 2, it can swing a lot from your projections.

Its true that manufacturers usually have thin margins. When i queried previously, their IR representative replied me that most of their largest customers have been with them for >5yrs, so at least valuetronics has shown they are able to retain clients for the long term.
I think a large part has to do with them value adding, and after the clients relocate to their manufacturing facilities, its difficult to find reasons to change manufacturers as there are other expenses to consider when relocating again. So in a way its not entire just based on price. A competitor will have to provide compelling reasons to make their clients relocate.
In addition, most of the large MNCs who are clients, usually employ a few manufacturers to spread their risk.
For eg. Valuetronics manufacture LEDs light bulbs for Philips, but there are other manufacturers for that same product as well.

[felixleong]

The thing with valuetronics or any other S-Chips is the cash in their balance sheet, I really have no way to be 100% sure if its real unless they pay it to me as dividends.

If their cash is not real, then it should trade way below book value.

[sgpunter]

Felixleong, it is obvious from your posts that you have already divested your stake in Valuetronics. But what is your intent in starting to ask questions now about their cash and linking them to S Chips after your divestment? I have absolutely no issue if you post the reasons why you think it is overvalued now and sold.

From your old posts when you were first vested, you seemed to be so positive. I certainly didn't see you posing such questions back then.

I leave it to the rest of the forummers to conclude what your intent is.

[thinknotleft]

I followed valuetronics since 2007. I think the mgmt is not bad, as they navigate the operations well due to flood in 1 year. N the mgt is smart to stop digging when the purifier biz is not doing well. The cyclical biz wld be their higher value-added biz on the design and manufacture (odm?). The oem, eg philips light blub, shd be more stable but lower margin. The downside to me is the rising labour cost. China getting expensive. I'm bought at 0.20, still vested as the PER is too low for me to sell.

[ForeverAlone]

How much cash per share do they have?

[felixleong]

Felixleong, it is obvious from your posts that you have already divested your stake in Valuetronics. But what is your intent in starting to ask questions now about their cash and linking them to S Chips after your divestment? I have absolutely no issue if you post the reasons why you think it is overvalued now and sold.

From your old posts when you were first vested, you seemed to be so positive. I certainly didn't see you posing such questions back then.

I leave it to the rest of the forummers to conclude what your intent is.

of course I have bearish intents.

however my fair value for valuetronics is still the same, the target is 30 cents ^_^

do note that in those very early posts I also discussed about stuffs such as the management options, management selling their stakes and the cash hoard etc

[Drizzt]

i disagree with any fair value assumptions of felix, but i don't think he meant it as something negative. he got invested because there are some things that outweighs others.

what he did is good to guard against confirmation bias or any forms of group think.

[ForeverAlone]

I think for any discussion of stocks, always good to see both the good and bad sides and discuss about it