Electronics manufacturing services provider Valuetronics BN2 Holdings will invest approximately HK$172 million ($28.39 million) through its wholly-owned subsidiary to expand AI computing infrastructure that will be leased to its 55%-owned joint venture (JV), Trio AI Limited.

 

According to a Sept 27 bourse filing, Valuetronics will acquire an additional batch of approximately 750 MetaX graphics processing unit (GPU) chips and ancillary hardware as part of the investment. This will expand Trio AI&rsquo s computing capacity from the current 250 GPU chips to above 1,000 GPU chips. 

 

Mainboard-listed Valuetronics announced in June that it had set up a JV with SinnetCloud HK. The latter is a wholly-owned Hong Kong subsidiary of Sinnet Cloud Co. Ltd., a GPU and AI solutions provider affiliated with the Shenzhen Stock Exchange-listed Beijing Sinnet Technology Co., Ltd.

 

Valuetronics says the increased GPU capacity will let Trio AI offer &ldquo premium, high-performance services&rdquo , including accelerated AI model training, real-time analytics and large-scale simulations, that can command higher pricing and profit margins.

 

According to the announcement, the larger capacity will allow the JV to enable generative AI uses and tailored services for AI-driven applications, including personalised recommendations and advanced cybersecurity solutions.

 

Ricky Tse, chairman and managing director of Valuetronics, says: &ldquo The market response to our initial investment in the 250-unit GPU computing cluster in Hong Kong has been remarkable. This deployment has garnered significant attention because MetaX GPU is developed by a leading technology company in China and we are the first one to commercially introduce it in the overseas markets. Building on this momentum, our latest investment strategically increases our capacity to over 1,000 GPU chips, establishing an industry-leading scale that further strengthens Trio AI' s pioneering status in the Hong Kong market.&rdquo

 

Tse adds that the expansion will attract high-value clients and unlock new business opportunities. &ldquo We are confident that this expansion will enable us to fully leverage the growing potential within the rapidly evolving AI landscape."  

 

Similar to the terms of its earlier investment, this batch of additional equipment will be leased to Trio AI under the existing master equipment leasing agreement, with terms that include a lease period of 60 months from the date of delivery and installation. 

 

The lease terms will cover the acquisition and associated costs, including an interest component, with the total cost to be funded through the group&rsquo s internal resources. 

 

PhillipCapital analyst Paul Chew is keeping his &ldquo buy&rdquo call on Valuetronics BN2 -0.8% with a raised target price of 76 cents from 70 cents previously following the company&rsquo s FY2024 ended March 31 results.

 

Read more: Valuetronics&rsquo FY2024 earnings up by 29.8% y-o-y to HK$159.6 mil on better margins and higher interest income

 

In his June 3 report, Chew writes that although Valuetronics&rsquo FY2024 revenue was only 89% of his estimates for the period, its profit after tax and minority interests (patmi) was &ldquo better than expected&rdquo at 105% of his forecast.

 

&ldquo Lower depreciation, effective tax, and higher interest income were the reasons for the outperformance,&rdquo adds Chew. 

 

On the company&rsquo s lower revenue, Chew writes: &ldquo Revenue was weaker than expected due to drag in legacy products such as consumer product printed circuit board assembly (PCBA) and auto entertainment modules. Customers have permanently switched their supply chains out of China.&rdquo

 

Despite this, the analyst notes Valuetronics will soon see &ldquo contributions from new customers&rdquo , in networking products and theme park entertainment devices.

 

Meanwhile, he notes that gross margins for the period expanded by   3% points y-o-y to 15.6%, the &ldquo highest in three years&rdquo .

 

&ldquo New products, weak renminbi, falling depreciation and less (spot) pricy electronic components are driving up margins. Net margin was also boosted by the overprovision of taxes in 1HFY2024, lower depreciation and interest income is not taxable,&rdquo writes Chew.

 

Notably, Valuetronics&rsquo free cash in FY2024 was HK$212 million ($36 million), an improvement over the previous year&rsquo s HK$163 million. 

 

Including special dividends, the company is paying out 25 cents to its shareholders for the period, which Chew notes is a 25% rise from FY2023. 

 

The analyst writes: &ldquo Capital expenditure (capex) will remain low at HK$20 million. This is after the massive capex spend of around HK$90mn per annum (p.a.) for three years in FY2020 to FY2022 on a new Vietnam factory.&rdquo

 

On the 2HFY2024, while Valuetronics&rsquo earnings grew 19% y-o-y to HK$77 million &ldquo due to higher gross margins and a doubling of interest income&rdquo , revenue declined 19% y-o-y to HK$778 million.

 

Chew explains that the &ldquo biggest drag&rdquo to revenue was the 23% y-o-y fall in the company&rsquo s industrial and commercial electronics (ICE) segment, which suffered from a combination of its household consumer and auto products &ldquo fading out&rdquo due to a supply chain exit, while its &ldquo weak&rdquo printers category has been hurt by excess inventory post-pandemic.

 

&ldquo Our target price is based on industry valuations of 11 times price-to-equity ratio (p/e) one-year forward earnings,&rdquo writes the analyst as he keeps his FY2025 patmi estimates unchanged.

 

Chew highlights that with a cash pile of HK$1.16 billion, Valuetronics&rsquo valuations &ldquo remain attractive&rdquo with around 80% of its market capitalisation in net cash, while the company is also &ldquo aggressively&rdquo returning capital with its increase in dividends and its &ldquo outstanding&rdquo share buyback plan of HK171 million.

 

On his outlook, Chew expects revenue and margins to improve as new customer contributions increase. 

 

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&ldquo The pace of the turnaround will still be constrained by some remaining legacy products.&rdquo

 

He adds: &ldquo For new customer ramps to be meaningful, they require at least two years.&rdquo

 

&ldquo Weak macro may delay the launch of some products and cause customers to keep leaner inventory levels. However, we also expect Valuetronics to add more new customers with their excess capacity in Vietnam,&rdquo concludes the analyst.

 

Analysts are upbeat on Valuetronics BN2 -0.9% &rsquo prospects after the company&rsquo s earnings for the 1HFY2024 ended Sept 30stood above their expectations. For the six-month period, Valuetronics&rsquo s earnings came in at HK$82.1 million ($14.3 million), 42% higher y-o-y.

 

UOB Kay Hian analyst John Cheong has upgraded his call on the stock to &ldquo buy&rdquo as Valuetronics&rsquo 1HFY2024 earnings made up 61% of his full-year estimates.

 

Though Cheong remains mixed on the company&rsquo s outlook amid the market uncertainties, he notes that it has four new &ldquo promising&rdquo customers, of which two will start contributing in the 2HFY2024.

 

To this end, Cheong has upped his earnings forecasts for the FY2024, FY2025 and FY2026 by 20%, 17% and 13% respectively after increasing his gross margin estimates by 2.6 percentage points to 15.6% for all three financial years (FYs). The increase in his margin estimates account for the better supply chain conditions, which have led to more favourable raw material price and reduced labour costs.

 

He has also increased his interest income estimates by around 100% to HK$52 million to HK$54 million to account for the more favourable interest rate and Valuetronics&rsquo huge cash balance of HK$1.1 billion, which is equivalent to 90% of its market cap.

 

In addition to his call upgrade, Cheong has lifted his target price estimate to 72 cents from 56 cents previously. The new target price, which has factored in the potential strong demand from Valuetronics&rsquo new customers, is pegged to 10.6 times of the company&rsquo s FY2024 P/E and 1 standard deviation (s.d.) above its historical P/E mean.

 

&ldquo Valuetronics is currently trading at only 1x FY2024 ex-cash P/E and offers an attractive FY2024 dividend yield of around 7.7%,&rdquo Cheong writes.

 

PhillipCapital analyst Paul Chew has kept his &ldquo buy&rdquo call on Valuetronics as the company&rsquo s earnings came in at 62% of his full-year estimates.

 

In his report, the analyst is positive on the company&rsquo s recovery in margins as well as its unprecedented dividend after its interim results. Meanwhile, the decline in Valuetronics&rsquo revenue, which was mainly due to lower component prices, was a concern.

 

However, the analyst is expecting to see a stronger set of numbers for the 2HFY2024 with revenue growth expected to come from Valuetronics&rsquo new customers.

 

Margin expansion is expected to continue from a higher mix of industrial & commercial electronics (ICE) products, increased volumes and weak renminbi (RMB), says Chew.

 

Following Valuetronics&rsquo 1HFY2024 results, Chew has also raised his earnings forecast for the FY2024 by 15%.

 

His target price, which was upped to 70 cents from 61 cents previously, is pegged to the industry valuation at 11x P/E one-year forward earnings.

 

&ldquo With the current cash hoard of HK$1.14 billion, around 90% of the market capitalisation is net cash. There is visibility of earnings growth over the next two years as Valuetronics&rsquo four new customers ramp-up production. The company trades at a dividend yield of 6% and has an outstanding share buyback plan of HK$182 million (or approximately 58 million shares at [its] current share price),&rdquo says Chew.

 

ELECTRONICS manufacturer Valuetronics : BN2 -0.93%posted a 42 per cent increase in net profit to HK$82.1 million (S$14.3 million) for H1 FY2024 ended Sep 30, compared with HK$57.9 million during the year-ago period.

 

It declared a special dividend of HK$0.04 per share on top of an interim dividend of HK$0.04 per share on Thursday (Nov 9), due to higher interest income.

 

Both interim and special dividends will be paid on Dec 1, after book closure on Nov 24.

 

The results translate to earnings per share of HK$0.198, up from HK$0.135 in H1 the previous financial year.

 

Revenue for the period stood at HK$891.3 million, down 15.2 per cent from HK$1.1 billion, because of falling demand across its consumer electronics, as well as industrial and commercial electronics segments.

 

Gross profit, however, increased 5.8 per cent to HK$138.9 million, leading gross profit margin to improve to 15.6 per cent from 12.5 per cent. This was attributed to more stable material costs, driven by the relief of component shortage issues.

 

&ldquo In addition, direct labour costs in China have also normalised due to a more stable labour supply and the depreciation of the renminbi,&rdquo Valuetronics said.

 

Both selling and distribution expenses and administrative expenses went down, while the group registered a 123 per cent rise in other income to HK$28.8 million. This was mainly driven by the US Federal Reserve lifting interest rates, which boosted interest income.

 

The group also highlighted its strong financial position, with no bank borrowings as at Sep 30.

 

Its cash and cash equivalents stood at HK$1.1 billion, up from HK$1 billion as at end-March.

 

Ricky Tse, chairman and managing director of Valuetronics, said: &ldquo Despite the challenging macro environment, we have managed to onboard customers in new and various sectors who will help to further diversify our revenue.

 

&ldquo We will continue to leverage our Vietnam and China campuses to provide diversified manufacturing solutions and seize opportunities to acquire new customers.&rdquo

 

Valuetronics also noted that it intends to continue with the share buyback programme to &ldquo increase shareholders&rsquo value and improve the return on equity of the group&rdquo .

 

VALUETRONICS Holdings on Tuesday (May 30) reported net profit of HK$65.1 million (S$11.3 million) for the half year ended Mar 31, up 14.4 per cent from its H2 FY2022 net profit of HK$56.9 million as higher interest rates helped to boost the group&rsquo s interest income.

 

Its board has proposed a special dividend of HK$0.06 per share on top of a final dividend of HK$0.10.

 

Including its interim dividend of HK$0.04 paid out in December 2022, this brings the group&rsquo s full-year payout to HK$0.20 as opposed to its FY2022 aggregate dividend of HK$0.14 per share.

 

Earnings per share (EPS) for the half year stood at HK$0.156 versus HK$0.131 the previous year. This brings the group&rsquo s full year EPS to HK$0.291, up from HK$0.26 in FY2022.

 

Revenue for H2 fell 5 per cent on the year to HK$962.1 million from HK$1 billion, dragged down by a 51.7 per cent year-on-year fall in consumer electronics revenue to HK$187.3 million amid softening demand in end-user markets.

 

This more than offset higher revenue contributions from the industrial and commercial electronics segment, which grew 23.9 per cent to HK$774.8 million over the period.

 

The topline decline was, however, cushioned by a surge in net other income and gains for the half year, which rose 160.7 per cent to HK$19.1 million due to multiple interest rate hikes by the US Federal Reserve.

 

For the full year, Valuetronics reported a net profit of HK$123 million, up 8.3 per cent from HK$113.5 million in FY2022.

 

FY2023 revenue dipped 0.7 per cent to HK$2 billion, while other income and gains were up 117.5 per cent to HK$32 million from HK$14.7 million previously.

 

Though there was &ldquo some respite in the component shortage problem&rdquo faced by the industry compared to the previous year, Valuetronics noted that &ldquo significant reductions in component costs and improvements in lead time did not materialise&rdquo .

 

It expects component supply chain challenges to persist and to exert pressure on the group&rsquo s gross profit margins over FY2024.

Valuetronics announced that its earnings for 1HFY2023 ended September came in at HK$57.9 million ($10.2 million), a 2.2% increase from HK$56.6 million a year ago.

 

This came on the back of revenue increasing by 3.6% y-o-y to HK$1.1 billion.

 

Industrial and Commercial Electronics revenue increased by 15.9% y-o-y to HK$805.5 million, mainly contributed by the increase in demand from some of the group&rsquo s industrial and commercial electronics customers.

 

Consumer Electronics revenue decreased by 23.0% to HK$246.0 million, mainly due to the softening demand in end-markets.

 

The group&rsquo s gross profit margin also decreased from 14.2% to 12.5%, eroded by higher component prices due to tight supply, and the Covid-19 lockdowns of major cities in China which disrupted supply chains and impacted productivity.

 

Cash and cash equivalents for the end of the period stood at HK$979.3 million.

 

The group declared an interim dividend of 4 HK cents per share, unchanged from the same period a year ago.

 

On the outlook, chairman and managing director Ricky Tse Chong Hing says: &ldquo All our facilities in Vietnam are now fully consolidated at our Vietnam campus and this allows us greater operational efficiencies and economies of scale. As more customers are now able to visit our Vietnam campus with global travel resuming, we are confident that we will be able to convert these leads to new business in FY2024. Nevertheless, we are still facing multiple headwinds such as the Russia-Ukraine conflict, rising geopolitical tensions, hiking interest rate, dampening business sentiment and consumer spending.&rdquo

 

&ldquo Our strong fundamentals in terms of our manufacturing experience and capabilities in different countries, strong cash flows, and robust balance sheet with zero debt, will help us weather the challenges ahead and put us in a good position to also capture emergent opportunities,&rdquo he adds.

 

RHB has upgraded Valuetronics : BN2 +0.94% to &ldquo neutral&rdquo from &ldquo sell&rdquo on a recovering outlook, although it remains cautious of ongoing headwinds brought on by issues such as supply chain and component shortages. 

 

The research house&rsquo s target price on the stock has been left unchanged at S$0.53, which was the counter&rsquo s trading price as at 2 pm on Wednesday (Jun 8). 

 

In his report, RHB analyst Jarick Seet said he believes &ldquo the worst may be over&rdquo for Valuetronics after the group &ldquo (endured) a tough&rdquo FY2022, which Seet said is expected. 

 

The analyst remains cognisant of ongoing issues including higher component prices and increased labour and operating costs, which may contribute to a likely decline of revenue from the consumer electronics (CE) segment. 

 

As such, he believes Valuetronics&rsquo gross profit margin will continue facing pressure in the near term.  

 

However, in the longer-term, Seet anticipates the industrial and commercial electronics (ICE) segment to rebound from newly-acquired customers who are likely to contribute positively in 2023. He also noted that the group is currently preparing for the trial production for newly-acquired customers - and therefore believes &ldquo all is not lost&rdquo despite the expected headwinds. 

 

&ldquo All in, we still expect the effect to be a net positive as the industrial and commercial electronics segment yields better margins and profitability,&rdquo said Seet. 

 

The analyst also expects the group to continue rewarding shareholders considering continued management share buybacks and a positive past track record.

 

Meanwhile, Valuetronics&rsquo latest set of FY2022 results exceeded UOB Kay Hian&rsquo s (UOBKH) expectations, although the research house said it remained cautious on the stock&rsquo s outlook. 

 

UOBKH has maintained its &ldquo hold&rdquo call on the stock with an unchanged target price of S$0.52.

 

In a separate report on Tuesday, analyst John Cheong pointed out that supply chain bottlenecks are expected to last beyond 2022 - on top of other uncertainties including the Covid-19 pandemic and US-China trade tensions.

 

This has resulted in UOBKH lowering its gross margin assumption slightly by 0.1 percentage point to 13.7 per cent in FY2023, and 13.6 per cent in FY2024. 

 

Although Cheong is expecting the company&rsquo s newly-acquired ICE customers to contribute positively to revenue in FY2023, he thinks FY2022&rsquo s revenue rebound in the CE segment will not continue in the following fiscal year due to lower customer forecasts and shortage of components. 

 

The analyst has raised his overall revenue assumptions by 13 per cent to account for higher average selling prices to pass on extra input costs, resulting in an 8 per cent increase in earnings forecasts for FY2023 to FY2024. 

 

Cheong also remains positive on Valuetronics&rsquo ongoing expansion plans in Vietnam, which remain on track despite the Covid-19 pandemic. 

 

Citing the group&rsquo s recently-constructed Vietnam campus in Vinh Phuc, the analyst believes this will &ldquo serve as a reference&rdquo for other customers on the readiness and scalability of the project. 

 

VALUETRONICS Valuetronics: BN2 -3.39%, an electronic manufacturing service provider, on Wednesday (Nov 10) posted a 38.1 per cent drop in net profit for the first half ended Sep 30.

 

Severe shortages of certain key electronic components have affected the group' s ability to meet orders, leading to a decline in revenue and a corresponding decrease in profit, said Valuetronics chairman and managing director Ricky Tse Chong Hing in a press statement.

 

Net profit for the 6 months ended September 2021 stood at HK$56.6 million (S$9.8 million), compared with HK$91.5 million a year ago.

 

Earnings per share was HK$0.13, versus HK$0.21 previously.

 

Revenue was down 7.3 per cent to HK$1 billion, from HK$1.1 billion posted in the year-ago period. 

 

The consumer electronics segment fell 12.5 per cent year on year to HK$319.4 million, from HK$365.1 million, mainly due to the cancellation and deferral of customer orders as a result of the components shortage. 

 

Meanwhile, the group' s industrial and commercial electronics (ICE) segment dropped 4.8 per cent to HK$695.1 million, from HK$729.8 million in the year-ago period. It saw a " significant drop" in sales to an automotive consumer who switched their production from Valuetronics' s factory to another vendor in North America. 

 

Revenue growth from a printer customer and sensing devices customer helped offset ICE customer orders affected by the components shortage, Valuetronics noted. 

 

The board has declared an interim dividend of HK$0.04 per share, to be paid on Dec 3 after books close on Nov 24.

 

Although Tse expects the global components shortage to affect the group in the near term, he noted that Valuetronics' expansion plan in Vietnam is on track. The Vietnam campus is scheduled to go into mass production by end-FY2022 after passing ISO customer audits.

 

" There have been positive responses from potential customers regarding our regional manufacturing footprint strategy, and we are cautiously optimistic about revenue contributions from these new opportunities in the financial year ending Mar 31, 2023," he said.

 

Potential customers include a hardware provider for retail chain stores, and a customer providing cooling solutions for high-performance computing environments.

 

" The group is in the midst of finalising business terms with these potential customers, and this is subject to the constraints in supply chain which may affect the production ramp-up," Valuetronics said.