The Superstock of the week appeared on this blog for the second time this yea r. The company is Valuetronics Holding Limited (SGX:BN2). I f...

Weekly Superstock Scan 21 Aug 2017 - 25 Aug 2017: Valuetronics Holdings Limited (Singapore)

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The Superstock of the week appeared on this blog for the second time this year. The company is Valuetronics Holding Limited (SGX:BN2). I first blogged on this company in February this year and you can read on it here.



I did buy the stock back in February at $0.655 and made a good realised and unrealised profit, even before accounting for the 10 for 1 bonus share and the dividend I received this month. In fact, I took profit on half of my holdings this week when price broke out strongly and I was not sure if it was sustainable. Clearly I would have held on if I knew that Valuetronics will turn out to be this week's potential superstock of the week.

To recap, Valuetronics is a Hong Kong company listed on the Singapore Stock Exchange. It focuses on the design and development of consumer electronics as well as industrial and commercial electronics products, with core competencies ranging from tool fabrication, injection moulding, metal stamping, machining, surface mount technology (“SMT”) and finished product assembly on full turnkey basis.

Valuetronics classifies its EMS business into 2 reportable segments, namely consumer electronics products (CE) and industrial and commercial electronics products (ICE). 

Technical



When I blogged on it in February, Valuetronics broke out of a long tight range and consolidated till May, where it broke out again. Since June, Valuetronics was trading in a range between $0.74 and $0.88. Last week, when the results for Q1 FY2018 was released, price gapped up above the range. It did hit a high of $1 before retracing to close the week at $0.935. The volume for the week was 23 million shares, more than 4 times its weekly trading volume.

Fundamental





Including the most recent quarter, Valuetronics reported four consecutive quarters of year on year EPS growth. This reverses the downward trend in EPS that began near the end of 2015.

Smart Lighting Products

The catalyst for Valuetronics remains largely unchanged since February. The first catalyst that benefited its consumer electronics segment was the entry into smart LED lighting. Valuetronics is optimistic on the growth prospects of the smart LED lighting product as IOT devices are gaining more popularity.

Penetration into the Automotive Industry

In FY2016, Valuetronics acquired its first customer in the automotive industry, supplying data and media connectivity modules to the customer. Valuetronics is recently qualified by another automaker of served by an existing automotive customer.

Automation

In FY2017, Valuetronics started a programme to replace manual insertion and wave soldering with auto-insertion and selective soldering. These lines will be deployed for the production of automotive products in the coming year. This will improve the quality of the products and reduce cost.

There are also other semi-automation processes which will help valuetronics to improve its productivity and meet higher demands.

Matrices
- Relatively large float of 292 million shares, approximately 115 times its average daily trading volume.
o Following the surge in price, Valuetronics is trading slightly at 11.6 times its trailing twelve months EPS

Risk Factors/ Things I do not like


  • Weak Candle - The breakout bar was weak. Even though it was a gap up, the candle closed far from its high as it was unable to keep its gains.
  • Big Round Number - Related to the point above, it might be because of the big round number ($1) price point above. It is a very logical point for buyers to take profit at that level (I tried to do that too) therefore it is very hard for the price to break that level. However, if Valuetronics manage to break their level, most weak hands would be out and there is a very good chance that price will explode further.
  • Sustainability of Smart Lighting Growth - As a new product, Valuetronics may receive good margins and growth for smart lighting products. As competitions grow stronger with Chinese competitors (e.g. Xiaomi's Yeelight), growth may slow and Valuetronics will need to find new catalysts.




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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.