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As per what singaporegal had mentioned on 17 Dec that this counter had erratic volumes and I had just did a check on the past chart that this counter doesn't really "responds" to A/D Lines & Chaikin, I feel that to do a TA on this counter can be quite "challenging".
PE is very high now, dunno whether sustainable or not.
Excerpt from The Edge, Singapore 15 Oct 2006:
1. Lion Capital has a 6.03% stake in Innovalues.
2. Innovalues has made a profitable shift to manufacturing components for the automobile industry from the traditional office automation (OA) industry.
3. Several US and European automotive component manufacturers have been outsourcing work to Asia. Innovalues has been able to ride this boom.
4. Innovalues looks forward to winning new customers as automobile companies increase emphasis on safety and seek out more safety components for their cars. And Innovalues founder and CEO Goh Leng Tse hopes turnover from automotive will overtake OA to make up 50% of total revenues by 2008.
5. Innovalues currently produces 3 components for Sensata Technologies, a former unit of Texas Instruments:
(Website of Sensata Technologies- http://www.sensata.com/about/index.htm)
i. Braking sensors- provide enhanced safety features, especially for nagivating along winding roads; so far used only in luxury cars in Europe, but which will be used in luxury and mass market cars in the US by next year. Strong growth expected in this component. Innovalues manufactures it out of its Malaysian plants.
ii. Occupant weight sensors- Occupant weight sensors measure the weight of an occupant. An advanced air bag system might use this information to prevent the air bag from deploying at all in the presence of children. The Federal Motor Safety 208 rule in the US made it mandatory this year for all passenger cars to have an advanced airbag deployment system based on the physical weight of passengers to increase the level of protection. Demand is therefore growing. Innovalues currently manufactures 95% of the components used in these sensors at its Thailand plant on behalf of Texas Instruments.
iii. Automotive pressure transducer (APT) sensors- activate the fan in the car according to temparature changes. Innovalues started the production of APT sensors at its China plant under a pilot programme by Texas Instruments in May. Currently, the bulk of these sensors are still being produced by other manufacturers in Japan and Mexico. But production would eventually be entirely relocated in China. Innovalues may garner a bigger order book as worldwide demand for APT sensors is expected to reach 70 mil units this year.
6. Apart from Texas Instruments, Innovalues has also secured new automotive component manufacturing customers like:
i. Siemens VDO (fuel injector) - after trial runs for Siemens VDO diesel engine fuel injector components, mass production is expected to start at the end of Oct 2006. In CIMB research report, it states that Siemens could become a major customer of innovalues' Malaysian operations as the company is in talks for more projects.
ii. Bosch (fuel pump)
iii. HILITE International (engine valve and transmission valve)
iv. LUK (clutch disc)- production is expected to start next year for LUK's clutch discs, which would be used in General Motors, Audi and BMW cars.
7. Despite growth potential in automotives, Innovalues is not scaling down its OA business.
i. Goh says the company is in talks with a major printer customer to manufacture laser printer shafts. If successful, this potential customers could contribute 20% to Innovalues' total OA revenues next year.
ii. Innovalues has also benefited from Hewlett-Packard's recent volume growth- 15% y-o-y between May and July. As a result, it has widened its product offerings to HP to include components for wide-format printers, the production of which HP is gradually moving away from Europe to Asia.
8. Innovalues' Malaysia and China plants are running at almost full capacity, but the existing Thailand plant, which produces mostly automotive and hard disk drive (HDD) components and represents about 20% of total group capacity, is operating at about 80%.
9. (Negatives and risks) Innovalues' HDD business and therefore its HDD production in its Thailand plants has been impacted by a decision by a key HDD customer, Minebea, to allocate more production in-house following a management reshuffle last October. Previously, Minebea outsources 75% of the production to Innovalues but has since reduced this to 70% this year. And the volume could drop further.
10. While CIMB analyst says Innovalues may no longer focus on this area but will increase its focus on the stable automotive components sector, Goh says Innovalues is in talks with a potential HDD customer who could invest US$200 mil to develop the business regionally. If things go as planned, this would provide Innovalues an opportunity to deal directly with a HDD original equipment manufacturer. For now, the weakness in the Thailand plant has been partially compensated for by a surge in the automotive components business as volume for occupant weight sensors remains robust.
11. Capex. Innovalues has budgeted for a total of $16.5 million in capital expenditure, up from $15.8 million in 2005. It will be financed through internal funds and bank borrowings. To date, it has spend $7 mil this year.
12. Its second plant in Thailand, which is under construction, is on track to commence production in 4Q2007. This plant will triple its production floor area in Thailand from 41,000 sq ft to 108,000 sq ft.
13. Innovalues will also expand its China facilities from 88,000 sq ft to 161,000 sq ft next year to support rising demand.
Erratic volumes.... plus overbought now. Should be cautious.
This stock is just like LKH, moving up slowly but surely. LKH also have low shares in the market.
this counter has the potential of issuing new shares [new fund for expansion] or stock split as it has quite low for the no of shares = 157m
This one has already "cheonged". But may still have some juice left if you have the confidence to chase it a bit.
Should be able to hit $1.5 target at 1Q '07..
climbing slowly... way to go...
Low and inconsistent volumes.... TA people should avoid
i wonder how it is valued so much. twice its present stock price.
has been climbing slowly but little volume.
any recommendation
CIMB-GK rolled out its 2007 strategy today ----- The Road Less Travelled
We have an end-2007 index target of 3,080 for the Singapore market. We believe the market has not reached its cycle peak yet and urge investors to stay invested. However, while the consensus is still bullish on property, we believe property is trading at unjustifiable valuations. Rather, 2007 could be the year in which the laggard tech sector has its Indian summer. We now Overweight manufacturing and conglomerates. Banks and transport & communications are Neutrals while property has been reduced from Overweight to Underweight.
It lists out 10 stocks: OCBC Bank, CapitaLand, SembCorp Marine, Cosco, Chartered Semicon, Singapore Land, Osim, Unisteel, Luzhou Bio-chem and Innovalues.
With target price set at $1.52, Innovalues stands out to have the highest upside potential of 68%. At $0.90, the stock is trading at 10x and 7.8x PE for FY06 and FY07 and the target price is set on the basis of 13x FY07 PE. Other figures include 33.7% 3-year EPS CAGR, 2.9x P/B, 26.2% ROE and 2.8 % dividend yield.
It is in talks to acquire an Asian-based rubber parts firm in a bid to boost its automotive components sales as it rides on buoyant car demand in the region.
Innovalues
"We're in discussions to acquire a company specialising in rubber technology, which would help us penetrate the Japanese automotive market," Innovalues Business Director Steven Pung told Reuters in an interview, declining to provide details.
Innovalues' automotive customers include German car parts maker Robert Bosch GmbH and the car electronics unit of German engineering conglomerate Siemens
It also sells to printer maker HP, as well as Japan's Minebea Co. Ltd., which produces spindle motors for hard disk drive makers Seagate
"But we don't expect to (raise money) in the near term -- maybe six months down the road," he added.
Innovalues' net debt-to-equity ratio stands at 46.2%.
"We're comfortable about gearing up to about 60% through bank loans, if necessary," added CEO Goh Leng Tse.
Innovalues' cash and cash equivalents stood at $6.3 million at the end of June. It has borrowings of $30.6 million, comprising mostly of bank loans.
Goh said Innovalues expects to increase its revenues and earnings at a CAGR of at least 30% over the next few years.
"Between 1999 and 2005, our sales grew at a CAGR of 42%. A CAGR of 30%plus for sales and earnings over the next few years is not a problem," he added.
Goh said he expects the automotive business to account for nearly half of group revenues by 2008, compared with less than 20% this year.
"Car makers are increasingly outsourcing production to Asia as the costs here are lower. Demand for automotives is also huge in China, India and Vietnam, thanks to rising affluence in these markets," he added.
The robust growth in automotives would also more than compensate for a decline in hard disk drive sales, after key customer Minebea cut back on its production outsourcing.
"This year, we've suffered a decline of 30% in terms of hard disk drive orders, and next year, it will be further reduced, but we are in talks with a new customer and will likely start production for them in the second quarter," Goh said. He declined to identify the customer.
Innovalues plans to pay out 30-40% of its net profit as dividends annually, compared with 31% in 2005 and 20% in 2004, Goh said.
Innovalues posted a 40% jump in net profit for the six months ended June, on a 33% rise in revenue.
The OA division is expected to rise a robust 40% qoq in 3Q ended Sep 06. 2H06 sales in this division is expected to increase 37% hoh to $50-52m (full year about $88-90m). More importantly, profit margins are expected to improve a couple of percentage points reflecting economies of scale, use of cheaper substitute raw materials and overall cost reductions (reduce packaging costs, faster cycle time and lower labour costs). Thus profit from this division would increase at a faster rate than sales growth.
The automotive division remains robust despite some short term delays in a new product for Sensata and push out in Siemens VDO orders till early next year. 2H06 sales is expected to increase 20% hoh to $12-13m (full year about $22-23m, up from $10m last year and $5m 2 years ago).
The HDD division, however, is seeing faster than expected decline in orders from Minebea due to their in-sourcing strategy and mgt don't expect Seiko nor Nidec to start anytime soon (ie may be cancelled). They are instead working on a potential new customer Samsung which will likely only start new year (if qualification is approved). This division would likely see a 50% hoh decline in sales to $3-4m (full year sales of $10-11m). Mgt will be using some of this machines to produce OA and automotive parts while the others could be sold to Mineba or used for Samsung.
Prospects for '07 are much stronger due to increased demand from existing automotive customer Sensata and new automotive customers Hilite, Siemens VDO, Luk and Bosch. Automotive sales is expected to increase 3 folds next year. Margins are expected to improve due to economies of scale, better product mix and improved cycle time.
In the OA division, existing customers would provide stable growth, but the new laser printer customer would provide incremental growth. And wide format printers, shaft for the new laser printer customeras well as value added services (doing more rubber rollers in-house from 20% to 50%) would provide a boost to margins. Additional cheaper substitute raw materials (if approved) could also help to boost margins.
All these would help to offset the weakness in the HDD segment (could be reduced to zero by end of next year if Samsung is not qualified).
Besides switching the machines, mgt would also be required to add new machines. Floor area is expected to be boosted from 28,700 sqm in China, Thailand and Malaysia.
Net profit for this year is forecasted to be $14.5m and $19m next year, representing a 31% growth. This would put forward and prospective PE at 8.8x and 6.7x respectively. This compares well with its closest HK-listed peer IPE which is trading at 10x and 8.5x respectively despite Innovalue's superior ROE of 27% vs IPE's 20%.
CIMB-GK said it has lifted its target price for Innovalues to $1.52 from $1.18 previously on expectations of strong earnings going forward, with the company's Malaysian manufacturing facility running at full capacity.
"Our recent Malaysian plant visit reinforced our positive view. The Malaysian plants represent 65% of group capacity, focusing mainly on office automation (OA) and automotive components," CIMB-GK said in a note to clients.
"All three plants are operating close to full capacity on the back of seasonal demand and new customers and programmes," it added,
"The Thailand and China plants are also busy with automotive and OA businesses, respectively. The Thai plant is operating at about 80% of capacity due to a slowdown in the HDD components business. The China facility, which focuses on OA and automotive, is running close to full capacity," the brokerage said.
CIMB-GK expects Innovalues' net profit to rise from $10.1m last year to $14.2m this year, to $18.4m next year and to $24.3m in 2008.
The latest Innov results were better than expected. Valuations are undemanding. Stock price has flattened out again though.
Innovalu has potential -
BT reports that its automotive division saw sales more than triple in 2005 to $10.7 million. They're also in talks with a few potential automotive customers and the future contract wins may provide upside to 2007 earnings.
Innovalues is trading at just 8.1x 2006 P/E and 6.5x 2007 P/E.