Innovalues - DBS Research 2015-11-19: Revving up on auto growth

Innovalues - DBS Research 2015-11-19: Revving up on auto growth INNOVALUES LIMITED 591.SI 

Innovalues - Revving up on auto growth 

  • Long-standing manufacturing partner of precision parts to leading Automotive and Office Automation players – Sensata, Hilite and HP. 
  • Greater focus on eco-efficiency and plans to grow sensor business could drive revenue to grow at 11% CAGR from FY14 to FY17F. 
  • Earnings to grow at 20% CAGR over FY14-17F, which is supported by enhanced productivity. 

The Business 

Potential beneficiary of trend towards greater eco-efficiency. 

  • Rising awareness and stricter regulatory standards on safety and emissions present sustainable opportunities for auto component manufacturers. As a veteran in this field, Innovalues is able to draw on its existing products and engineering capabilities to tap into the growth potential arising from this trend. 

Global smart sensor market expected to grow at a 9.9% CAGR between 2013 and 2020. 

  • Through a partnership with Sensata Technologies, the leading producer of sensors, Innovalues hopes to further develop its car sensor business and venture into the industrial segment to deliver faster-than-market growth. 

Working with manufacturers to customise machines in-house. 

  • Innovalues’ ability to deliver tailored manufacturing solutions enables the company to operate more efficiently than its peers. 
  • When ongoing automations are completed in 3Q16, we expect a boost to EBIT margins from 15.2% in FY14 to 20.4% in FY17. 

The Stock 

Fair value of S$0.89 based on 12x FY16 PE. 

  • Larger peers are currently trading at an average of c. 13.7x FY16 earnings. 
  • Given its smaller scale, we believe that Innovalues should be valued at c.10% discount, at 12x FY16F PE, or S$0.89. 
  • Over the next 12 months, as the Group continues to deliver earnings growth, it could rerate to 12x blended FY16/17F PE of S$0.95.

Paul YONG CFA DBS Vickers | 2015-11-19
DBS Vickers SGX Stock Analyst Report NOT RATED Maintain NOT RATED 0.95 Same 0.95