InnoTek - UOB Kay Hian 2021-04-19: Beneficiary Of Strong Growth In China’s Auto Sales & The Electric Vehicles Industry


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.

  • We expect demand for the OA segment to recover in 2021 post COVID-19. InnoTek’s factory in Thailand, Rayong started commercial production of OA equipment in 2020. InnoTek is looking to develop the factory to support automotive customers in Thailand in future.

Strong cash generating ability and high net cash balance underappreciated.

InnoTek - Valuation & Recommendation

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-04-19
SGX Stock Analyst Report BUY MAINTAIN BUY 1.20 UP 0.820