Monday, 10 October 2016

Why I buy Valuetronics?

I got to know Valuetronics after I read articles on NextInsight. I was attracted to its dividend and purchased a small stake. I increased my stake further after reading its past few years of annual reports. I like its story of how it exited LED business in Consumer Electronics (CE) segment and growing in the Industrial, Consumer Electronics (ICE) segment which provides a higher margin. Just before writing this post, I browsed through the posts on Valuebuddies and now know a bit more of its historical business of licensing, to CE and now ICE. 

Why buy?
My main reason to purchase Valuetronics is its high dividend yield. My average yield is about 6.6% if it can maintain is 20 HK cents DPS going forward. How likely is that? I think that in the near term, it is quite possible if they can continue to grow their ICE business which commands a higher margin. 

Reading the posts from valuebuddies confirm my dislike of manufacturing sector which typically has low margin and depends a lot on its customers. Valuetronics has survived near to 25 years since it was established in 1992 and it seems nimble enough to continue to grow its business.

What I expect?
Do not really know what I can expect but I am hopeful that their growth in ICE will make them a bigger player in the Electronic Manufacturing Services provider.

When will I sell?
Of course if what I hope for doesn't turn true or when Mr Market value it 3-5x the annual dividend I am receiving and there is no change in its fundamentals.

Recent results
20171Q revenue and net profit continued to decrease from its exit of LED segment since 20163Q, partially offset by the growth in ICE segment. Management has guided that revenue of CE segment is more or less stable at about HK 140 mil to HK 160 mil. Entry to automotive industry will be its next driver.

So all is well, within expectation and I will continue to hold on to my small stake.

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