Innovalues - Maybank Kim Eng 2015-11-05: 3Q15 Beat. Stronger Outlook Ahead

INNOVALUES LIMITED 591.SI

Innovalues - 3Q15 Beat. Stronger Outlook Ahead

3Q15 beat estimates on better-than-expected revenue despite China auto slowdown, and forex gains.
Expect strong 4Q15, driven by both automotive and office automation. FY15E EPS raised by 6%, FY16E intact.
Maintain BUY on unchanged TP of SGD1.02, still at 12x FY16E EPS. Catalyst from potential special dividends this year.

Revenue fell 3% YoY on slower China auto sales in Jun-Aug, still slightly higher than we expected.
But NP (+61% YoY, +14% QoQ) was 21% ahead of forecast, mainly on forex gains as USD had strong gains against SGD, MYR and THB, its three major operating currencies.
9M15 NP met 79% of FY15 forecast.
Offsetting the weaker automotive (AU) sales, office automation (OA) took up the slack as customers moved more printer production from China to SEA, benefitting Innovalues in Thailand.
Gross margin rose 1.1%-pts YoY to 28.4%, but fell QoQ on the lower sales and a retrenchment charge following relocation of AU production from China to Malaysia to take advantage of lower labour costs. This was within the guided range.
Excluding this charge, we estimate GP margin to be above 29% (29.9% in 2Q15).
Orders surged in Sep as China auto sales recovered from the summer lull.
We expect this momentum to carry into 4Q on strong customer indications for AU and OA as China cut sales tax to stimulate car sales. We also expect margins to improve on lower labour costs post-relocation and higher revenue.
FY15E raised 6%. FY16 outlook is also positive, on greater demand from existing customers and rising contributions from new customers.

Maintain BUY with unchanged TP of SGD1.02, based on 12x FY16E. Innovalues is a beneficiary of rising global standards for vehicular safety and pollution, particularly critical in light of the VW cheating saga.
A net-cash growth stock at 9x FY16 P/E and 4.6% yield.
Catalysts include potential special dividends this year.

Gregory Yap CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-05

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.02 Same 1.02