- 2QFY3/15 results in line. Revenue and net profit down 0.7% and 8.4% YoY respectively.
- Continues to face fierce competition and price pressure in lighting, a de-rating catalyst. EPS trimmed by about 1%.
- Maintain contrarian SELL and SGD0.25 TP, at 4.4x FY16E EPS.
1H15 earnings fell 3.7% YoY to form 52% of our FY15E forecast. Consumer Electronics revenue declined a steeper 11.2% YoY and we expect the weakness to continue in the mid-term as competition in LED lighting worsens. In its results announcement, management said that they will “proactively manage our reliance on this segment” which, we believe, suggests it could reduce its exposure or even exit the business completely if things get worse. We had initially modelled in an 8% revenue decline for Consumer Electronics for FY15E-17E, but now expect an 11-12% contraction. This brings down our FY15E-17E EPS by about 1%. We also expect further margin pressure in 2H15. Consumer Electronics gross margin was an estimated 9% in 1H15, and we continue to forecast 8.2% for the full year.
Industrial growth to moderate
Industrial revenue increased 30.6% YoY to HKD468m in 1H15, in line with our forecast. This division has been strong in recent quarters, thanks to clients’ outsourcing of their production to Valuetronics from the third quarter of last year. We expect YoY growth to moderate to 10-15% by 4Q15, as the customers complete the migration of their production.
Maintain SELL
Maintain SELL with de-rating catalysts expected from further sets of weak results, especially from lighting. TP unchanged at SGD0.25 or 4.4x FY16E EPS, based on zero value for its lighting business and 4-6x PER for its non-lighting Industrial businesses.
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