Saturday, June 10, 2017

Stock Incubator -- Valuetronics Holdings Limited

I have added Valuetronics into my Stock Incubator portfolio.  What's difference from Nordic Group is I've taken the opportunity of its recent bonus issue (1 for 10) and acquired the bonus share.  The parent holding was sold off with a capital gain thereby what I am holding is practically FOC,

Valuetronics is one of those better fundamental stocks that in my watch list for the past years.  In fact it was my practicing target some 2 to 3 years ago while its stock price still in the $0.40 to $0.50+ level.  I tested some of my 孙子兵法 concepts on it.

A brief summary of what the company does (quoted from SGX StockFacts) :-

Valuetronics Holdings Limited, an investment holding company, provides integrated electronics manufacturing services. It operates through two segments, Consumer Electronics, and Industrial and Commercial Electronics segments. The company’s design and development engineering services include mechanical design; plastic tool design; electronics, RF, and software designs; regulatory compliance engineering and testing; and product test development. Its manufacturing services comprise plastic tool fabrication and injection molding; metal stamping and machining; printed circuit board assemblies, including complex multi-layer boards; sub-assemblies and full product assemblies; reliability engineering and testing; quality systems; materials procurement; and on-site program management. The company’s supply chain support services include shipment of products to final destinations; product customization and drop shipment; warranty and non-warranty repairs; spare parts inventory and shipment; and direct fulfillment programs. It also specializes in original equipment manufacturing services, including PCBA assembly and box-build assembly, as well as original design manufacturing services. In addition, the company is involved in property holding and trading businesses, as well as provides business services. It serves multinational and mid-size companies in the telecommunications, industrial, commercial, and consumer fields in North America, Europe, and the Asia pacific regions. Valuetronics Holdings Limited was founded in 1992 and is headquartered in Shatin, Hong Kong.

Initially, I was undecided whether to place Valuetronics into the Strategic section of my Investment portfolio (since it is at $0 cost) but later dropped that idea as for some reason I prefer to have all the Reits there and also based on its current fundamental, like Nordic Group, it has not met all the criteria for me to be place in the non-Strategic section of the Investment portfolio, hence putting it in the Incubator portfolio makes more sense.

The several criteria that I set on are :-

1. Total Revenue  --  S$500M and above
2. Profit Margin  --  10% and above
3. ROE  --  20% and above
4. Current Ratio  --  2 and above
5. Debt level  --  best is net cash

According to the latest FY2017 figure from SGX StockFacts (refer here), this is what Valuetronics has achieved.

1. Total Revenue FY2017  --  S$408.898M
2. Profit Margin  --  6.772%
3. ROE  --  17.158%
4. Current Ratio  --  1.833
5. Debt level  --  0 Long-Term Debt, cash holding S$145.18M

As seen, only the Debt Level has meet the criteria while the rest yet but are showing sign of reaching it.  This fits the bill of my Stock Incubator portfolio -- investing in those potential gem.  Normally, I have a cut-loss level for these Incubator stock but since this is a free holding, no cut-loss is set for the time being.

I choose not to put in cash in Valuetronics at the moment given that at current price $0.865 (closing price on 9th Jun 2017), it is doing a Price/Book Value of 2.151 and PE of 13.371.  Those figure don't really sound cheap to me so to reduce risk, I opt to hold just the bonus share at the moment.  Going forward, with a cash holding of 83.41% (in my Stock Incubator portfolio), I do have the capital to invest in more should the price drop to a bargain level (providing the fundamental still remain sound).  Meanwhile, from technical point of view, its stock price look still have some upside (just look at UMS, another in my watch list which unfortunately, I admit I have missed that opportunity when it was still doing sub $0.60 back then) and with a final and special dividend of HK 20 cents being declared for FY2017, my bonus holding will ride the upside and the dividend payout.

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