Losing the light: Valuetronics on a downward spiral as Dutch customer leaves

And cheaper Chinese products are making the market more competitive.

Valuetronics faces an uncertain future as its largest customer – a Dutch lighting, consumer electronics and healthcare conglomerate - has decided to split its lighting business from the rest of its businesses, in order to focus on higher-margin, less-challenging segments. Lighting, in particular LED lighting, accounts for 40% of Valuetronics’s revenue and 30% of its gross profit.

A report by Maybank Kim Eng adds that premium LED lighting brands are being undercut by cheaper Chinese products. Valuetronics’s customer has had to cut its prices as it repositions its brand in the consumer mass market. Valuetronics’s margins in 1QFY15E were affected by the price cuts. Despite its customer’s split, the worst still lies ahead, in our view. We expect Valuetronics’s profits to decline in the next two years.

With the slump in lighting, Valuetronics’s Industrial business will have to shoulder the burden of growth. However, we do not think Industrial’s growth will be enough to offset the decline in the lighting-heavy Consumer Electronics division. Some 60% of Valuetronics’s revenue comes from lighting products for its Dutch customer.