Valuetronics’ share price plunged after news a customer’s sales disappointed, but it’s “too early to dim the lights,” CGS-CIMB said in a note on Friday.
The stock tumbled to S$0.68 on Friday, down 8.11 percent on the day, and off around 24 percent from its close at S$0.90 on April 25.
That was a “knee-jerk reaction” to a major customer, a Dutch MNC, which missed its first-quarter earnings forecasts due to weak sales in the home lighting division, particularly in the U.S.
“However, management of the Dutch MNC reassured that the positive structural trend for smart home lighting remains intact, and they continue to innovate in terms of product design. They also expect sales to normalise in the second half of 2018 to attain their full-year
target of double-digit growth,” CGS-CIMB noted.
It estimated the Dutch MNC accounted for around 20-25 percent of Valuetronics’ fiscal nine-month 2018 revenue and that it’s been one of the Singapore company’s growth drivers since the second quarter of last year.
But the brokerage advised looking beyond “near-term noise.”
“VALUE is currently one of the two suppliers for the second generation of these smart home light bulbs, with potential to gain orders for the third generation,” it said.
The worst-case scenario was for two quarters’ impact on sales, even as medium-term prospects remained strong, it said, keeping unchanged its topline growth forecasts of 31 percent and 10 percent for fiscal 2018 and 2019, respectively.
It said market penetration of smart lighting is still low, especially outside the U.S., and it also expected a contribution from the second auto OEM customer for connectivity modules.
The stock was at nine times fiscal 2018 price-to-earnings, or five times ex-cash, which is “now an attractive entry price,” especially with the fiscal 2018-20 dividend yield of 5 percent and expected multi-year earnings growth .
It kept an Add call with S$1.10 target price.