Valuetronics Holdings Limited (VHL) will begin FY14 on a fresh page, as it will no longer incur losses on its Licensing business following its decision to terminate operations in 2QFY13. Any recovery in VHL’s earnings will likely translate into higher dividends for its shareholders, in our view, as VHL had a relatively stable dividend payout ratio of 37-42% from FY10-13. This is also supported by VHL’s strong net cash position. Looking ahead, we believe that VHL will focus its attention largely on its LED lighting OEM business, given the robust industry growth prospects and its largest customer’s market leadership position in this field. However, given the continued lack of trading liquidity in VHL’s stock and a reallocation of resources, we are CEASING COVERAGE on the stock. Our last rating was a ‘Hold’ with a fair value estimate of S$0.195.
Losses of Licensing division a thing of the past
Valuetronics Holdings Limited (VHL) had to endure a difficult FY13, as its decision to cease its Licensing segment resulted in one-off termination expenses and impairment losses on assets. This culminated in segment losses amounting to HK$39.8m in FY13, wider than the HK$30.0m loss reported in FY12, thus causing a drag on overall group profitability. Looking ahead, VHL will be able to start on a fresh page, as it will no longer incur further operating expenses from its Licensing business. Any recovery in VHL’s earnings will likely translate into higher dividends for its shareholders, in our view, as VHL had a relatively stable dividend payout ratio of 37-42% from FY10-13. In addition, VHL has a strong net cash balance of HK$221.6m as at 31 Mar 2013 (no debt), which forms 52% of its current market cap.
Glowing growth potential of LED market
We believe that VHL will focus its attention largely on its LED lighting OEM business, given the robust industry growth prospects. McKinsey has forecasted the LED general lighting market to grow at a 45% and 15% CAGR from 2011-2016 and from 2016-2020, respectively. VHL’s largest customer holds a market leadership position in this field, and also recorded a solid 28% YoY growth in its LED-based sales for its 2Q13 results, driven by ongoing urbanisation and rising demand for energy efficient lighting solutions. LED lighting currently contributes 25% of this customer’s lighting portfolio, and this is expected to increase to ~45% by 2015, as highlighted in its recent results conference call. We expect VHL to be a beneficiary of this trend in the medium-to-long-term. In the near-term, however, while penetration rates of LED lighting are increasing, demand in Western Europe has been dampened by the tepid economic conditions.
Ceasing coverage
Given the continued lack of trading liquidity in VHL’s stock and a reallocation of resources, we are CEASING COVERAGE on the stock. Our last rating was a ‘Hold’ with a fair value estimate of S$0.195.
Valuetronics Holdings Limited (VHL) had to endure a difficult FY13, as its decision to cease its Licensing segment resulted in one-off termination expenses and impairment losses on assets. This culminated in segment losses amounting to HK$39.8m in FY13, wider than the HK$30.0m loss reported in FY12, thus causing a drag on overall group profitability. Looking ahead, VHL will be able to start on a fresh page, as it will no longer incur further operating expenses from its Licensing business. Any recovery in VHL’s earnings will likely translate into higher dividends for its shareholders, in our view, as VHL had a relatively stable dividend payout ratio of 37-42% from FY10-13. In addition, VHL has a strong net cash balance of HK$221.6m as at 31 Mar 2013 (no debt), which forms 52% of its current market cap.
Glowing growth potential of LED market
We believe that VHL will focus its attention largely on its LED lighting OEM business, given the robust industry growth prospects. McKinsey has forecasted the LED general lighting market to grow at a 45% and 15% CAGR from 2011-2016 and from 2016-2020, respectively. VHL’s largest customer holds a market leadership position in this field, and also recorded a solid 28% YoY growth in its LED-based sales for its 2Q13 results, driven by ongoing urbanisation and rising demand for energy efficient lighting solutions. LED lighting currently contributes 25% of this customer’s lighting portfolio, and this is expected to increase to ~45% by 2015, as highlighted in its recent results conference call. We expect VHL to be a beneficiary of this trend in the medium-to-long-term. In the near-term, however, while penetration rates of LED lighting are increasing, demand in Western Europe has been dampened by the tepid economic conditions.
Ceasing coverage
Given the continued lack of trading liquidity in VHL’s stock and a reallocation of resources, we are CEASING COVERAGE on the stock. Our last rating was a ‘Hold’ with a fair value estimate of S$0.195.
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