Valuetronics, a manufacturing company headquartered in Hong Kong with facilities in china. Valuetronics provides Electronics Manufacturing Services (EMS) in Original Equipment Manufacturing (OEM) and Original Design Manufacturing (ODM) services, from design to logistic and marketing. Valuetronics delivers total solutions that meet the needs of their diverse client base.
Valuetronics emphasis on customer engagement resulted in high involvement in the designing and manufacturing engineering process of their OEM customers. Hence, the differentiation between OEM and ODM customers is blurred. In FY2013, business segments had been reclassified as Consumer Electronics(CE) Products and Industrial and Commercial Electronics(ICE) Product. In FY2014, an existing ICE customer close down its facilities and transfer production to Valuetronic's facilities.
In FY2016, Valuetronics exited LED light bulb business after 8 years as the margin eroded and switched to Smart LED lightings, riding on the Internet of Things for the CE segment. This resulted in the drop in revenue in CE segment in 2016. Similarly, its expansion of the ICE to automotive business in car connectivity aid in ICE segment growth.
After 2 years, the licensing business was terminated in FY 2013. The business produced products like air purifier and fans under US brands, which were sold in US.
Business Moat
The way Valuetronics do business by engaging with customers, developing long-term relationships with global customers and to bring value added service to them. Customers brought in Valuetronics expertise in their OEM engineering, transfer production to Valuetronics are examples. This resulted in customer stickiness with Valuetronic. As old customers stays with Valuetronics, Valuetronics can look for new customers or business to expand to.
Growth Factor
Smart LED lightings as expected from Philips should improve in 2H2018. Automative business customer had engaged by a second automaker customer of the automotive customer, high probably of continuous growth (look at revenue by segment chart of ICE). Valuetronics has been reducing cost and increase productivity, with expanding business, its staff count remain stable at around 4000 employees. They can expand their capacities as it has an empty plot of land at Daya Bay site.
Business Risk
Weaken in demand like what happen to the Smart LED lightings or margin erosion like the LED light bulb. However, Valuetronics has in the past always taken the necessary decisions to exit certain lines of business which it feels will drag down the overall financial performance. So we should believe the management expertise in their business.
Valuetronics top line and bottom line is growing, there is no perfect businesses that won't have hiccups now and then. Even Tencent has its first drop in profit in its latest quarter result. It is obvious that the company is growing but face challenges in FY2019 as Trump is the president of US right now.
Historical ROE at above 13% and Net Margin average 6.7% for the pass 5 years. Healthy Current ratio of 1.86, quick ratio of 1.43. Should not be an issue if a crisis hits. Zero debt with cash horde growing every year. Current yield expected to be HKD0.20,4.57% minimum, hopeful to have HKD0.27, 6.17%
Valuetronics appear in my earlier screening with the following criteria :
Current Ratio >1
Net Income > 5%
Debt/Equity < 0.5
ROE>15%
I am Vested at 0.665 and will continue to accumulate below 0.79 and TP 1.26 -1.4.
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