INNOTEK LIMITED (SGX:M14)
InnoTek - Beneficiary Of Strong Growth In China’s Auto Sales & The Electric Vehicles Industry
- InnoTek (SGX:M14) is set to benefit from the strong growth in China’s auto sales in 2021 and the high-growth electric vehicles (EV) industry as it has started serving EV manufacturers. The China Association of Automobile Manufacturers (CAAM) estimates that passenger vehicle sales grew by 74% y-o-y in 1Q21 due to a strong recovery in demand.
- We expect InnoTek’s earnings per share to grow by 39% y-o-y in 2021. We raise our target price by 46% to S$1.20 (12x 2022 earnings per share). InnoTek's share price currently trades at only 5x ex-cash 2022 P/E.
InnoTek - Positive outlook from venturing into the electric vehicles and parts assembly business.
- In the outlook statement of InnoTek’s recent 2020 Annual Report (see InnoTek's announcements) dated 13 Apr 21, InnoTek highlighted that its China's Auto division is experiencing great change, with a clear shift towards electric vehicles (EV). InnoTek’s precision metal components division also serves EV manufacturers.
- However, as the industry evolves holistically towards charging stations and infrastructure support, InnoTek will seek to deepen its value proposition with existing and develop new customers. This means moving beyond single-part manufacturing to parts assembly. InnoTek has secured initial orders of the latter and expect orders to increase as it establishes its foothold within the segment.
- In addition, the general secretary of China Passenger Car Association (CPCA), Cui Dongshu, recently said in an article that China’s passenger EVs sales will likely reach 2m units in 2021 (+80% y-o-y), driven by both domestic demand and exports, eg Tesla Giga Shanghai has started to export Model 3 to overseas markets since Oct 20.
Set to benefit from a strong recovery in China’s auto sales.
- China has successfully contained the COVID-19 outbreak, which has led to a surge in passenger vehicle (PV) sales back to InnoTek, which has large exposure to China’s automobile market (historically accounted for > 30% of annual revenue), is set to benefit.
Expect a recovery in the office automation (OA) segment.
Strong cash generating ability and high net cash balance underappreciated.
- As of end-20, InnoTek has a net cash position of S$90.2m, up from S$0.02 in 2020. See InnoTek's dividend history.
InnoTek - Valuation & Recommendation
- We maintain our earnings forecast for InnoTek. Maintain BUY and raise P/E-based target price by 46% to S$1.20, based on a 12x 2022F P/E (10x 2021F P/E previously), pegged to the average peers’ P/E.
- InnoTek's share price is trading at high margins as compared to its peers. Thus, we believe InnoTek should trade nearer to its peers’ multiple of 12x 2022F P/E.
- See InnoTek Share Price; InnoTek Target Price; InnoTek Analyst Reports; InnoTek Dividend History; InnoTek Announcements; InnoTek Latest News.
- Share price catalyst:
- Better-than-expected demand ex-cash P/E multiple.
- Better-than-expected dividend.
- Risks include demand disruption from COVID-19, competition and adverse regulatory changes.
- InnoTek is also included as one of the UOBKH's Singapore stock alpha picks since February. See Singapore Stock Alpha Picks (Feb 2021) - UOB Kay Hian 2021-02-04: Strong Outperformance; Add In GHY Culture, InnoTek; Remove Sunpower, Frencken, Venture Corp) and the most recent report: Singapore Stock Alpha Picks (April 2021) - UOB Kay Hian 2021-04-06: Adding UMS, Removing Frencken.
John Cheong
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-04-19
SGX Stock
Analyst Report
1.20
UP
0.820
