INNOVALUES LIMITED
591.SI
Innovalues (IP SP) - Good Progress Made
3Q16 results in line; BUY and TP maintained
- Innovalues continued to deliver on its earlier guidance of a strengthening business. 3Q16 was in line; we maintain our full-year forecast and TP of SGD1.15 (13.5x FY17E P/E, 10% below peer average).
- We see revenue growth accelerating on growing beneficial trends toward stricter regulation of vehicular safety & control, energy savings, and environmental protection, while cost controls in the form of greater automation should drive margin upside.
- The stock offers good value at 11x P/E and 4% yield. M&A, if it comes, will be a bonus.
Core growth sparks into second sequential quarter
- 3Q16 revenue/core NP rose 11.5%/56% YoY, excluding the impact of very substantial FX gains that occurred in 3Q15 (SGD3.1m 3Q15 vs SGD0.3m in 3Q16).
- With sales comfortably exceeding SGD30m for the quarter, GP margin shot up 4.5ppt YoY and 1.3ppt QoQ to 32.9% on higher operating leverage; we had expected 32.7% for the full year.
- The main driver was automotive (78% of 3Q revenue), which was +12% YoY on broad based customer contributions in its second sequential quarter of improvement.
Major customer Sensata’s robust 3Q bodes well
- Simultaneously, major customer Sensata also announced robust 3Q results, which showed the same trends; namely, sequential revenue and margin improvement.
- Full-year guidance was maintained, while growing M&A synergies are setting up the runway for Sensata’s longer-term growth, especially in China where the acquisition of Schrader in 2014 is expected to allow it to tap into fast-riding OEM and aftermarket demand for tyre pressure monitoring sensors.
M&A will be a bonus, if it happens
- Finally, we still think Innovalues will make a good acquisition candidate for the right buyer. In our view, it will make a good fit for automotive-oriented PE funds or industry buyers looking to take advantage of trends toward stricter regulation in vehicular safety/control, energy saving and environmental protection.
- Based on our analysis, we see takeout offers in the range of SGD1.00-1.20 (9-11x FY15 EV/EBITDA), which should be acceptable to the market.
Gregory Yap CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-10-26
Maybank Kim Eng
SGX Stock
Analyst Report
1.15
Same
1.150