SINGAPORE (Jan 10): CIMB Research is highlighting precision metal components manufacturer InnoTek as a potential stock to watch as the group’s financials improve on the back of restructuring efforts in recent years.
The group has been restructuring since FY12, during which it slipped into a net loss of $18.4 million due to a combination of lower revenue arising from political tensions between China and Japan, as well as the commencement of its restructuring and consolidating efforts.
In a Tuesday non-rated report, analyst William Tng notes that the move, along with a change in management, has led to the return to positive net profit since 2Q16, with the company resuming payment of dividends in FY16.
“As at end-Sep 2017, InnoTek was in a net cash position of $31.9 million [or 37% of its market cap]. InnoTek did not pay any dividends in FY14 and FY15 but paid a dividend per share (DPS) of 0.5 cents in FY16. The company has not announced any formal dividend policy. In FY12 and FY13, it paid DPS of 1 cent,” comments the analyst on the group’s balance sheet.
The group’s book value of equity per share (BVPS) as at end-9M17 was 57.5 cents, with a historical price to book value (P/BV) of 66 times based on its share price of 38.5 cents at the close of last Friday.
Tng also highlights the significant experience of the group’s new CEO Lou Yiliang in the customer electronics sand home appliances business in Asia.
“On 1 Mar 2017, Mr Lou was appointed CEO of InnoTek. Mr Lou has been purchasing shares from the open market over April to July 2016,” notes the analyst.
“Mr Lou’s strategy was: to further drive cost efficiencies; to improve the group’s skill sets and use of technology, noting that the group had fallen behind peers in capabilities such as mould making, machining and line management skills; and to personally drive customer engagement efforts,” he adds.
Looking ahead, InnoTek expects its Mansfield Weihai subsidiary in the printing & imaging segment to benefit from the printer business of Hewlett-Packard via its Samsung printer business acquisition.
The group’s new Thailand plant under the office automation business is anticipated by its management to commence production in 2H18 and gather momentum in FY19F onwards – while it also intends to pursue more programmes and orders for car seat moulds and stamped products under the automotive segment.
“In the TV segment, InnoTek reported that the market response for its aluminium heat sink for TVs has been positive. InnoTek expects the TV segment to remain a significant revenue contributor given growing consumer demand for high-definition TV panels with thin but strong bezels,” says Tng.
As at 12.25pm, shares in InnoTek are trading flat at 38 cents.
