Valuetronics another challenging quarter

• Estimated core PATMI falls 17.9% YoY
• Net cash position of HK$234.7m
• HOLD with lower S$0.19 FV

3QFY13 results below expectations
Valuetronics Holdings Limited (VHL) reported its 3QFY13 results which were below our expectations. Revenue from continuing operations fell 16.3% YoY to HK$508.1m, or 10.5% below our forecast. Reported PATMI dipped 22.2% YoY to HK$24.5m. Adjusting for exceptional items, we estimate core PATMI of HK$23.9m, a 17.9% YoY decline, and this fell short of our projection by 16.2%. VHL continued to incur operating losses (HK$1.1m) from its Licensing division, but this was a significant reduction from 2QFY13 (HK$31.2m) which includes HK$28.0m worth of one-off termination expenditure and impairment charges given its decision to cease operations of the division. For 9MFY13, revenue inched 1.0% higher at HK$1,731.0m, while estimated core PATMI of HK$80.5m represented a decline of 3.9%.

Slowdown in orders from some customers
VHL continued to experience a slowdown in demand from some of its Consumer Electronics (CE) customers, including its largest customer which deals with LED lighting products. However, the latter was due partly to inventory correction and a transition to more cost competitive chips used in its LED products, thus leading to softer orders for VHL in 3QFY13. There were also ASP pressures from some of its major customers, which contributed to the challenging operating conditions.

Strong financial position to weather the uncertainties
Despite its tepid 3QFY13 results, VHL managed to generate
HK$71.6m of free-cash flows (3QFY12: HK$65.5m), thus ending the Dec-quarter with a healthy net cash balance of HK$234.7m. This forms approximately 49.6% of its market capitalisation. We expect VHL to use this cash to support its attractive dividend payouts and act as a buffer given the continued macroeconomic uncertainties.

Cut estimates and fair value but maintain HOLD
We pare our FY13 and FY14 revenue forecasts by 5.0% and 4.3%, and our core PATMI projections by 9.3% and 7.4%, respectively. We also roll forward our valuations to 4x FY14F EPS, and our fair value estimate is lowered from S$0.20 to S$0.19. Maintain HOLD.