Overlooked value

�� Premier EMS service provider for the big boys

Valuetronics is an integrated EMS provider for customers in the

telecommunications, industrial and commercial electronic products, and

consumer electronic product industries. Currently, its client portfolio includes

market leaders in their respective fields such as Philips, Dymo, and KitchenAid.

100% of its active customers are repeat customers.

�� Leveraging on the buoyant EMS industry

According to In-Stat research, Asia?s EMS market is projected to grow by 132%

from US$121.5b in 2006 to US$281.8b by 2011; of which, China will account for

76% of the Asian market (US$214.2b in value). With its facilities in the PRC,

Valuetronics is in a sweet position to capitalise on this outsourcing trend;

leveraging on its extensive network, and consistently upgrading its manufacturing

expertise through its design and development (D&D) capabilities.

�� Sturdy organic growth

We are forecasting Valuetronics to deliver 21% bottomline CAGR over FY07-

FY10F with strong orders from existing and new customers. We are also

anticipating steady net margin expansion underpinned by economies of scale as

orderbook is expected to grow 17% in FY08 and 25% in FY09, and

management?s continued focus on maintaining healthy gross margins of between

18-20%.

�� Compelling valuation; Initiate with a Buy

We are initiating coverage on Valuetronics with a Buy recommendation. We see

fair value at $0.49 based on 8x FY09 PE, implying a 42% upside potential.

Valuetronics trades at a compelling 5.7x FY09 PE (3.4x ex-cash) and at a steep

36% discount to local ODM/OEM peers. With cash of HK$176.6m (representing

29% of market capitalization), sustainable margins, superior ROE of ~33%, and

an A-list customer portfolio, we believe the market has overlooked the intrinsic

worth of Valuetronics. Management is confident of keeping to its 30% dividend