Valuetronics Holdings Financial Analysis – Net Profit Growth of 10.2%

Business Description

Valuetronics Holdings Limited is an integrated Electronics Manufacturing Services (EMS) provider established in 1992 in Hong Kong. The company is listed on the SGX Mainboard since 28 March 2007 and operates two facilities in ShenZhen, China, and Hanoi, Vietnam. Their services include design and development, manufacturing, assembly, and supply chain support.

Core Business Operations and Segments

Valuetronics offers a full range of EMS services, including:

• Design and Development: Engineering design, product design, tool design, and deployment.
• Manufacturing: Integrated manufacturing sites in China and Vietnam.
• Assembly: Plastic injection molding, metal stamping, printed circuit board assembly, and box build assembly.
• Supply Chain Support: Turn-key manufacturing services, procurement, and delivery of products.

Geographic Footprint

Valuetronics operates mainly in China and Vietnam, with a significant presence in Hong Kong where their headquarters are located.

Industry Position, Competitors, and Market Share

Valuetronics is positioned as a one-stop EMS provider in the industry, competing with other global EMS companies. The company serves diverse industries including automotive, network communications, and industrial electronics, thus having a wide range of customers worldwide.

Revenue Streams, Customer Base, Supply Chain, and Competitive Advantage

The company’s revenue streams are diversified across Consumer Electronics (CE) and Industrial & Commercial Electronics (ICE). In recent years, the company has been strategically diversifying into AI-related services through a joint venture. Their supply chain is robust with improvements in component supply chain and depreciation in RMB supporting further gains in gross margin.

Financial Statements Analysis

Income Statement

For 1H FY2025, Valuetronics reported a revenue of HK\$862.1 million, a slight decrease of 3.3% from 1H FY2024. However, the gross profit increased by 4.3% to HK\$144.8 million, leading to a gross profit margin of 16.8%, up from 15.6%. Net attributable profit rose by 10.2% to HK\$90.5 million, with a net profit margin improving to 10.5% from 9.2% [[12]].

Balance Sheet

As of 1HFY25, Valuetronics shows strong financial health with net assets amounting to HK\$1,426.4 million and a net cash balance of HK\$1,174.5 million. The working capital remains stable with inventories, trade receivables, and trade payables indicating a healthy turnover [[18]].

Cash Flow Statement

The company generated HK\$103.5 million from operating activities in 1H FY2025. There was a net increase in cash and cash equivalents by HK\$11.9 million, despite significant outlays for dividend payments and share buybacks [[17]].

Key Findings from Financial Statement Analysis

Strengths

• Net profit growth of 10.2% indicating strong profitability [[12]].
• Healthy gross profit margin increase to 16.8% [[12]].
• Strong net cash position and net assets [[18]].
• Strategic diversification into AI-related services with new joint ventures [[24]].

Risks

• Revenue decline by 3.3%, indicating potential market challenges [[12]].
• Persistent global inflation and geopolitical instability could impact future performance [[21]].

Dividends

The company has declared an interim dividend of 4.0 HK cents and a special dividend of 4.0 HK cents for 1H FY2025 [[16]].

Strategic Actions for Profitability

Valuetronics is exploring new opportunities with existing customers while expanding their customer base. The company is leveraging its manufacturing solutions in Vietnam to respond to evolving demands and geopolitical uncertainties. Additionally, the new JV Co. aims to offer premium AI-related cloud services to attract high-value clients [[23]].

Recommendation

For Current Investors

Hold the stock. The company shows strong profitability, healthy financials, and strategic actions that promise future growth.

For Potential Investors

Consider investing. The company’s strong net profit growth, strategic diversification, and robust financial health make it a promising investment.

Disclaimer

The recommendations provided are based on the financial report from Valuetronics Holdings for HY2025 as of 13 Nov 2024. Investors should conduct their own research or consult with a financial advisor before making any investment decisions.