Broker: UOB Kay Hian
Date of Report: 30 May 2025

Valuetronics Holdings Delivers Record Margins and Attractive Dividends: Why Investors Should Take Notice in 2025

Overview: Strong FY25 Performance and Robust FY26 Outlook

Valuetronics Holdings, a key player in original equipment and design manufacturing, has reported a solid set of results for FY25, underscoring its operational strength and commitment to shareholder returns. The company, which serves a diverse range of customers in telecommunications, industrial, commercial, and consumer electronics, has not only met earnings expectations but also posted its highest gross margin on record. With a raised target price and an attractive dividend yield, Valuetronics offers compelling value for investors looking for resilient growth and income in the technology manufacturing sector.

Stock Snapshot

• Share Price: S\$0.685
• Target Price: S\$0.830 (Up 6% from previous S\$0.78)
• Upside Potential: +21.2%
• Market Cap: S\$277.9m (US\$215.4m)
• Dividend Yield (FY26F): 6.8%
• PE Ratio (FY26F): 9.1x (Ex-cash PE: 3x)
• Net Cash/Share (FY26): S\$2.88
• 52-Week High/Low: S\$0.710 / S\$0.550

FY25 Financial Highlights: Record Margins and Shareholder Rewards

Valuetronics reported revenue growth of 4% year-on-year (yoy), with profit after tax and minority interests (PATMI) up 7% yoy, in line with estimates. Notably, the company achieved a record gross margin of 17%, credited to a favorable sales mix and contributions from new customers.

• Revenue: HK\$1,729.1m (+3.5% yoy)
• Gross Profit: HK\$293.7m (+10.8% yoy)
• Gross Margin: 17.0% (up 1.1 percentage points)
• PATMI: HK\$170.4m (+6.8% yoy)
• PATMI Margin: 9.9% (up 0.3 percentage points)

The final dividend was raised to 11 HK cents per share (from 9 HK cents), with a special dividend maintained at 8 HK cents per share, bringing the total FY25 dividend to 27 HK cents per share—the highest since FY18 and reflecting a 65% payout ratio.

Segment Analysis: Consumer Electronics and Industrial Growth Drivers

• Consumer Electronics (CE): This segment faced a 12% revenue decline due to waning demand from legacy consumer lifestyle products. However, a new entertainment-focused customer partially offset the contraction, contributing positively to margins.
• Industrial & Consumer Electronics (ICE): ICE revenue rose 9% yoy, buoyed by strong orders from a Canadian network access solutions provider acquired in FY24. The shift toward higher-margin products drove an 11% increase in gross profit and set a new record for gross margin.

Key Financials (HK\$m)

Operational Resilience and Strategic Expansion

• Tariff Mitigation: Many US-shipping customers have already shifted production from China to Vietnam, insulating Valuetronics from the latest round of tariffs. US shipments accounted for 54% of total FY25 revenue, up from 42% in FY24.
• Vietnam Capacity Expansion: To meet robust customer demand, Valuetronics is expanding its Vietnam facility by fitting out an additional floor, increasing production capacity by roughly 30% and enhancing operational flexibility.
• Share Buybacks: The company has repurchased 34.1 million shares (HK\$107.1m) under its ongoing HK\$250m share buyback program and plans to continue buybacks in FY26.
• Strong Cash Position: Valuetronics maintains a net cash balance of HK\$1.1b (S\$180m), representing 65% of its market cap, with no borrowings. The payout ratio has consistently exceeded the formal 30-50% policy, standing at 65% for FY25.

FY26 and Beyond: Outlook and Valuation

Despite a volatile trade environment and elevated tariff risks, Valuetronics expects to remain profitable in FY26. The company foresees a further contraction in CE revenue due to the phase-out of a legacy customer, though this should be offset by a new entertainment-focused client. The ICE segment presents mixed prospects, with steady demand from its Canadian customer but cautious ordering elsewhere amid trade uncertainties.
The company has adjusted its FY26/27 revenue forecasts downward by 6% to reflect these headwinds, but improved gross margin assumptions have limited the impact on earnings, resulting in just a 1% reduction in profit estimates. A new FY28 forecast has also been introduced.
Valuation remains compelling, with the stock trading at only 3x FY26 ex-cash PE and offering a 6.8% dividend yield. The target price has been raised to S$0.83, pegged to 11x FY26 PE, reflecting above-average historical valuation due to demand from new customers and an upcoming joint venture.

Peer Comparison Table

Key Catalysts for Valuetronics’ Share Price

• Higher-than-expected dividends and potential M&A activity
• Proactive management navigating market challenges and trade uncertainties
• Continued expansion in Vietnam and operational resilience

Conclusion: A Compelling Case for Investors

Valuetronics Holdings stands out with its record margins, robust free cash flow, and a consistent commitment to rewarding shareholders. With a strong net cash position, expanding production capabilities in Vietnam, and a forward PE that is highly attractive versus peers, the company is well-positioned for steady growth even amid global uncertainties. Investors seeking resilient, yield-generating exposure to the electronics manufacturing sector should keep a close eye on Valuetronics in 2025 and beyond.