RHB: Valuetronics selloff is overdone and offers a buying opportunity

Singapore two-dollar bills

The selloff in Valuetronics shares after its Dutch MNC customer’s results missed is a good buying opportunity as the Singapore-listed company’s fundamentals are intact, RHB said in a note on Monday.

“We believe the recent share price correction presents a good buying opportunity at an attractive 2018 yield of 6.6 percent, as we believe the recent selling is overdone,” it said.

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. But on Monday, it surged 15.44 percent to S$0.79.

“Despite its Dutch MNC customer reporting a first quarter of 2018 earnings miss due to weak sales at its home lighting division, management has guided that the positive structural trend for smart home lighting remains intact, and expects sales to normalise and catch up in the second half of 2018,” RHB said. “Valuetronics is currently one of only two suppliers for the second generation smart light LEDs, and is in a promising position to gain more orders for the third generation LED products.”

RHB said it expected the company’s industrial and commercial electronics (ICE) segment would continue to grow, on higher demand from some existing customers and new projects for in-car connectivity modules used by the auto industry. It expected those product ramp-ups to continue this year, with the segment’s revenue growth to be around 10-12 percent a year.

RHB lowered its target price to S$0.96 from S$1.05, based on 10 times 2019 price-to-earnings ratio, down from 11 times previously to reflect weaker sentiment for the sector globally. It kept a Buy call.