Asian Daily

Varitronix is benefiting from lower cost on the recent weakness of Japanese yen as more than 65% of the components are sourced from Japan. Our 2013 profit forecast could be increased by 21%, if it can retain 30% of the cost-saving benefits for the auto displays.

    Notable demand from a low base in China and new orders from the Japanese market helped Varitronix offset the contracted European demand in 2012. Demand from Korea has bottomed out, and that from Europe has ceased to deteriorate.

    We estimate that the higher-margin automotive display sales will grow 13% YoY, increasing the revenue contribution by 4 pp to 66% in 2013. Varitronix is leveraged to any improvement in the already subdued European auto market.

    We raise our 2012-14 forecasts by 1-2% with higher auto display sales assumption. Shifting into a new fiscal year, we set our new target price at HK$5.00 (from HK$3.65). At 6.6x 2013E P/E, 0.7x P/B and a 7% yield, it is one of the few European auto recovery plays. We maintain our OUTPERFORM rating.