Valuetronics Holdings total 17 HK cents dividends

Fair value S$0.315

FY12 net profit exceeded our expectations
Valuetronics Holdings Limited (VHL) reported a 36.8% YoY jump in its 4QFY12 net profit to HK$38.4m on the back of a 14.2% increase in revenue to HK$607.2m. Sequentially, revenue fell slightly by 1.6% but net profit rose 22.0%. FY12 revenue of HK$2.38b (+20.7%) was within expectations, just 0.7% ahead of our estimates. Net profit climbed 7.5% to HK$130.3m, exceeding our forecast by 8.7% due largely to lower-than-expected operating expenses and effective tax rate. But excluding forex gains and other exceptional items, we estimate that its core earnings for FY12 would instead have increased 1.4% to HK$121.6m.

Record dividends declared
A highlight of VHL’s FY12 results came from its total declared dividends of 17 HK cents (including a 1 HK cent special dividend), which was its
highest ever since its IPO in Mar 2007. This was above our forecast of 14 HK cents and translates into a yield of 11.0%.

Expect continued momentum from largest customer
We believe that momentum from VHL’s largest customer would gain further traction moving forward, although we are also expecting weakness from its major ODM customers to continue. This partly reflects the still uncertain macroeconomic outlook. Hence we opine that VHL’s focus to effectively manage its working capital and increase its operating cashflows is a prudent move, and will also strengthen its ability to pay out healthy dividends. We estimate that VHL generated HK$191.0m of FCF in FY12, which is more than sufficient to cover the HK$61.0m needed for its declared FY12 dividends.

Maintain BUY
We raise our FY13 net profit estimates by 2.1%, on lower operating expenses but partially mitigated by lower gross margin assumptions. We also introduce our FY14 projections. Our fair value inches up from S$0.31 to S$0.315, still based on 5x FY13F EPS. Coupled with its attractive dividend yield as highlighted earlier, we maintain BUY on the stock.