"We are still increasing our economies of scale," said Innovalues CEO, Mr Goh Leng Tse, at its results briefing on Thursday. Photo by Sim Kih
GLOBAL ATTENTION on harmful vehicle exhaust emissions has been boosting the earnings of precision machine components manufacturer, Innovalues.
Pollution control policies adopted by major economies such as Europe, China, India and South Africa are implemented in stages with emission standards revised to be more stringent every few years.
In order to comply with such revisions, automakers will need more advanced autoparts, maintaining a steady demand for new automotive components.
More advanced autoparts to fight smog
China, which contributed over 60% of Innovalues’ FY2014 revenue, has a huge problem with smog because most vehicles there are pollutive.
The country is expected to gradually implement stricter emission standards nationwide from 2016 to 2020.
Such a development is expected to boost demand for greener automotive transmission engines, a product that Innovalues manufactures for Volkswagen.
Another key component that Innovalues produces is the "cylinder pressure only sensor" that reduces raw emissions from vehicles running on diesel fuel by detecting abnormal combustion in gasoline engines.
This product is manufactured for its key customer, Sensata Technologies (formerly known as Texas Instruments Sensors and Controls).
According to Sensata, reduction of carbon dioxide emission from heavy vehicles and off-road applications is the next growth driver for sensor growth.
Market Cap S$277.9 million | Current PE 14.9x | Dividend Yield 1.4%.
Bloomberg data
1Q earnings more than doubled
On 13 May, Innovalues posted 1QFY2015 revenue that grew 19.0% to S$29.1 million. About 79.8% of this came from its automotive (AU) components segment.
AU segment revenue grew 17.6% year-on-year to S$23.2 million, driven by increased orders from customers in the USA and in China.
Its office automation segment contributed S$5.7 million (20.0%) to Group revenue.
1QFY2015 net profit more than doubled to S$5.5 million (up 110.1% year-on-year), repeating its stellar performance in 4QFY2014.
Net profit margins also expanded by 8.2 percentage points, on improvement in sales mix, as well as operational efficiency and productivity.
On 14 May, Maybank Kim Eng analyst John Cheong maintained his ‘Buy’ call on Innovalues with a target price of S$1. His target price is based on 14x FY15 P/E, in line wth peer average.
KGI Securities also has a 'Buy' call. On 15 May, KGI Securities analyst Renfred Tay raised his target price on Innovalues to 98.5 cents (based on 14x FY15 P/E).
