Better value now
- No good reason for share price decline. Buying opportunity.
- No surprises expected in upcoming 2Q results. Catalyst if 2H performance is stronger than expected.
- Maintain BUY. Forecasts and SGD1.00 TP unchanged, pegged to 14x peer average.
What’s New
- Innovalues came under heavy selling pressure today for no reason we are aware of.
- Its prospects remain excellent. We expect 2Q15 results, to be released in early Aug, to meet our expectations.
- We forecast earnings of SGD5.6m, up 32% YoY and flat QoQ. 2Q should form 24% of our full-year forecast. The QoQ comparison will be slightly dampened by higher overheads from the current on-going transfer of Office Automation (OA) production from China to Malaysia. We have factored in the estimated SGD0.6m pa in cost savings into our forecasts.
- 2H15 is expected to be stronger than 1H15. However, there may be upside if traction is better than expected on the following:
- Innovalues has received a number of approvals on new auto parts that will go into mass-production in 2H15, from customers such as Sensata.
- Margin improvement from continuing productivity measures, which will now focus more on quality control and parts inspection. Management believes there is still scope for substantial cost savings in this area.
- Lastly, with almost SGD30m in cash, a lightly-geared balance sheet and a high-flying share price, there could also be scope for Innovalues to make EPS-accretive acquisitions.
What’s Our View
- We believe the share price correction opens up an opportunity to BUY into Innovalues at lower valuations.
- Our forecasts and TP are unchanged. Our TP of SGD1.00 is based on 14x FY15 P/E, in line with the average for its peers.
(Gregory Yap)
Source: http://www.maybank-ke.com.sg
