InnoTek - UOB Kay Hian 2021-09-08: Gaining Traction In The Electric Vehicle, Healthcare & Consumer Industries

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INNOTEK LIMITED (SGX:M14)

InnoTek - Gaining Traction In The Electric Vehicle, Healthcare & Consumer Industries

• We are confident InnoTek can achieve 28% y-o-y earnings growth for 2021, on the back of robust revenue growth in the auto segment of 45% y-o-y for 1H21. Also, winning new business in electric vehicle (EV), healthcare equipment and gaming consoles should boost growth. InnoTek’s solid 1H21 earnings of S$7.2m (+94% y-o-y) was in line with our expectation, meeting 41% of our full-year estimate.
• InnoTek currently trades at only 5x ex-cash 2022F P/E. Maintain BUY and target price of S$1.20 (12x 2022 EPS).

InnoTek won new business in the attractive EV, healthcare equipment and consumer industries.

• We are positive on the recent company update post 1H21 results as InnoTek (SGX:M14) revealed that it has secured new businesses in three sectors that have higher growth potential and margin.
  • Firstly, InnoTek’s EV-related customer is growing at a quick pace and is now contributing around 5% of the group’s revenue.
  • Secondly, InnoTek has also secured new customers for healthcare imaging equipment.
  • Finally, InnoTek has also won a new contract in the manufacturing of gaming consoles.

New Vietnam plant, expected to start in 2022, could drive further growth.

• On 18 Aug 21, InnoTek announced that it will be venturing into Vietnam via the incorporation of a new subsidiary, Mansfield Vietnam hand, office automation (OA) revenue increased y-o-y and revenue for TV and display products declined. Gross margin remained stable at around 21%.

STOCK IMPACT

• Strong cash generating ability and high net cash balance underappreciated. InnoTek has a net cash position of S$90m per share since 2016, and gradually increased this to S$0.02 per share in 2020. See InnoTek's dividend history.

EARNINGS REVISION

• We maintain our earnings forecast.

VALUATION & RECOMMENDATION

• Maintain BUY and PE-based target price of S$1.20, based on a 12x 2022F P/E, pegged to the average peers’ P/E.
• InnoTek's share price is trading at peers’ multiple of 12x 2022F P/E.
• See
  • InnoTek's Share Price,
  • InnoTek's Target Price,
  • InnoTek's Analyst Reports,
  • InnoTek's Dividend History,
  • InnoTek's Announcements,
  • InnoTek's Latest News.
• Share price catalysts include
  • Better-than-expected demand from automobile segments and winning of more EV customers.
  • Potential takeover target given its attractive ex-cash P/E multiple.
  • Better-than-expected dividend.
• Risks include demand disruption from COVID-19, competition and adverse regulatory changes.

• InnoTek is one of the UOBKH's Singapore stock alpha picks for Sept 2021. Read also: Singapore Stock Alpha Picks (Sep 2021) - Adding Lendlease REIT, Removing Ascendas REIT, SGX, Hong Leong Asia.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-09-08

SGX Stock Analyst Report BUY MAINTAIN BUY 1.200 SAME 1.200