Innovalues - Maybank Kim Eng 2016-02-21: Increasingly Valuable

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INNOVALUES LIMITED 591.SI 

Innovalues (IP SP) - Increasingly Valuable 

Stay BUY at 10x P/E, 5% Yield. 

• Potential M&A Catalyst Yielding c.5%, Innovalues remains a BUY at 10x FY16E. 
• Against slower global auto sales, it should continue to do well on the back of more new customers and ramp-up with existing customers. 
• With FY15 results in line, we forecast 12%/12% growth in FY16 rev/NP followed by 15%/17% in FY17. 
• Trend toward safer, more efficient and less polluting automobiles unabated. 
• M&A catalysts could also surface as we see more deals in this space. 
• TP SGD1.00, at 12.5x FY16 EPS (from 12x), is in line with peers. 

Growth Prospects Still Appealing 

• 2016 global auto sales could slow to just 1-2%, slower than 2015. 
• Against this backdrop, we still expect Innovalues to do relatively well in the short term and beyond. 
• We forecast revenue/NP to grow 12%/12%, driven by better revenue, low material costs and lower labour costs resulting in faster bottomline growth. 
• Longer-term, we believe the trend toward safer, more efficient and less polluting automobiles will strengthen. 

Broadening Its Base 

• Innovalues has widened its customer base to include new customers such as LUK, TE Connectivity, Amphenol and Continental, while driving more services (eg surface treatment) and machined parts allocation from existing customers Sensata, VW and Audi. 
• Developments at Sensata bear noting. Its acquisition of TPMS maker Schrader in 2014 could translate into orders for Innovalues by 2017 as US production is relocated to China. 

Ideal M&A 

• Candidate Two companies in the auto supply chain in Asia – SGX-listed Interplex and HK-listed IPE – have seen M&A activity since Dec 2015. We believe Innovalues is a superior M&A candidate. 
• In addition to being in the same space, Innovalues’ operating and financial metrics are better. 
• We also believe that its shareholder structure is conducive, with largest shareholder & founder Mr Goh Leng Tse holding just 20%.

Gregory Yap CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-02-21

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.00 Down 1.02