Why a sales miss by a Valuetronics customer won’t hit its earnings much

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An earnings miss by a Valuetronics customer may have decked the Singapore-listed manufacturer’s stock price, but it’s not likely to affect its earnings much, Maybank KimEng 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.

Valuetronics’ Dutch lighting customer missed its first-quarter consensus earnings estimates due to weak IOT bulb sales amid short-term inventory issues at the customer’s end-trading partners, Maybank KimEng noted, adding that’s what push Valuetronics’ shares lower.

The brokerage estimated the Dutch lighting customer will contribute around 31 percent of Valuetronics’ revenue by fiscal 2019. But it added, on a pro forma basis, assuming this has a 10 percent impact on the Singapore company’s IOT lighting sales, it will likely only have a 1.6 percent negative impact on earnings per share (EPS).

“This is a lower-margin product,” the note said. “While VALUE is sanguine on the multi-year prospects of IOT bulbs, it has warned investors that volumes shipped are dependent on the customer’s product and marketing plans.”

It kept its Buy call and S$1.25 price target unchanged, noting that it’s waiting until after the earnings blackout period to have more information to make adjustments.

But it added: “We maintain the view that VALUE is a beneficiary of emerging demand for home IOT and car connectivity from its smart-lighting and automotive customers; these customers are leaders in markets that are on the cusp of a take-off, and VALUE could be a beneficiary.”