INNOTEK

Business Times article this morning - interview with Innotek boss, who says 5c a year dividend will be sustainable. He wants Innotek to be seen as a dividend yield stock. At 10% yield (cos stock price is now 50 cents), it\'s a decent one, right?

Hi MacGyver, Glad to see your view on INNOTEK which are all very valid concern.... Most Tech counter have experience pick up in order... surprise that Innotek didn\'t have an increase in its order book. Paying dividend above its EPS is definitely not sustainable unless its coming expected EPS is going to be above 5 cents per annum. MacGyver, what is your view on China Kunda? Regards erelation

erelation: Can\'t use 2009 EPS of 3.25 cents and say that paying a dividend of 5 cents is unsustainable. In 2009, the first half was bad for Innotek, and everyone else. Innotek\'s MSF subsidiary turned around in the October-December 2009 - net profit of S$3.0 million compared to a loss of S$9.9 million in Q4’08. For the whole of FY09, MSF’s net profit rose to S$9.3 million from a loss of S$6.1 million. Management has guided for a strong Q1 this year, and for full yr.

Business Times - 22 Mar 2010 Innotek\'s high dividend policy to continue Firm on lookout for M&A opportunities, focus on earnings accretive companies By TIMOTHY SEOW MAINBOARD-listed Innotek - which for the second year running has proposed a final dividend of five cents a share - says that its high dividend payouts will continue in the long term and it is also on the lookout for merger and acquisition opportunities. Innotek\'s new managing director Yong Kok Hoon told BT that the company is positioning itself as a high-divided stock because it is not in a \'very sexy kind of sector\' and thus does not attract sufficient attention. In recent years, Innotek has rewarded shareholders handsomely. It paid dividends of 10 cents a share in 2007 and 2008 after the $180 million sale of its hard disk drive (HDD) business to Japan\'s TDK. Including last year, the total dividend payout in the past three years has amounted to $59 million. A share price of around 44 cents means that Innotek\'s proposed dividend of five cents a share makes for a yield of around 11 per cent. This equates to a total payout of $11.6 million. And subject to shareholder approval, that will take place on May 26. Mr Yong, who was previously Innotek\'s chief financial officer, believes that the high dividends are \'sustainable\' in the long term. \'First, we have cash, and second, we are very stable with a strong base of customers,\' he said. Innotek has strong cashflow and can pay out from operations alone, as it has low capital expenditure and high depreciation costs, he said. It is also not dipping into cash reserves. Innotek, which used to be known as Magnecomp International, enjoyed a huge turnaround in fortunes in FY2009, recording net profit of $7.6 million, compared with a net loss of $7 million the year before. This was achieved despite a fall in revenue to $361.5 million in FY2009, from $421.6 million in FY2008 - a result of cost-cutting measures, efficiency improvements and lower raw material prices. Mr Yong expects a \'better year-on-year performance for Q1 2010 and FY 2010\'. In the meantime, Innotek is on the alert for possible M&A opportunities, focusing especially on earnings accretive companies that can \'boost its bottom line\'. Such companies will preferably be \'synergistic with its manufacturing operations\', said Mr Yong, though he \'does not rule out something small, but with high growth potential, such as the alternative energy sector that could have high growth or margins\'. The 2007 sale of its HDD business marked a significant change in its strategy, as it sold a more \'sexy\' but also \'more volatile\' business and moved into a \'more stable\' one, Mr Yong said. In 2008, it used funds from the HDD sale to buy the remaining shares of Mansfield Manufacturing Company, a precision metal component manufacturer that is now its wholly owned subsidiary. Mr Yong said that Innotek is seeking to expand into the more \'high-margin\' business of medical equipment and automotive parts, which now make up 5 per cent and 9 per cent of overall revenue.

Hi Neontet, No offence, just that I find \"giving high dividends\" and \"M&A\" don\'t come together in corporate scene. I believe a better gauge would be to find out what exactly is Mansfield Manufacturing doing? Precision component manufacturing is a very wide word. And we need to find out who are the top 10 customers of this Company? If Mansfield is doing exports, then 2009 would be a terrible year for them. 2010 may not turn out to be better if the RMB appreciates while USD weakens. Their margins will be eroded again. On the subject of paying higher DPS than EPS, I did mentioned that if the EPS can improve, the Company definately has the ability to pay a sustainable dividend. My question is, the 4Q2009 results did not show any improvement in sales. Profitability was achieved via cost-cutting. So if the management guides for a better 1Q2010, is this results achieved via better cost management or are we seeing a higher sales? Questions that the Company can answer when it announces its 1Q2010 results. :laugh: :laugh:

I\'ve read the BT article about Innotek, and did not realize it used to be Magnecomp. Just by looking at some recent corporate developments, I also question if a high dividend can be sustained, assuming the Management goes all out to pursue earnings-accretive M&A. Unless the business has very strong and recurrent FCF, M&A will usually drain a substantial amount of cash and dividends will have to be lowered. This is of course all theory, and one has to look at the practical implications of any M&A activity, and how it can synergize with the Acquirer.