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Stock price |
52 c |
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52-week range |
33 – 61 c |
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Market cap |
S$118 m |
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PE (2018) |
5.8x |
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PE (ex-cash, financial assets) |
2.4x |
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Dividend yield |
2.9% |
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Year-to-date |
48% |
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P/B |
0.77 |
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EV/EBITDA |
2-2.4 |
About Innotek: Precision metal components manufacturer serving mainly Office Automation, Automotive, TV & Display with over 40 years of operational history; Customers include major MNCs such as Ricoh, Canon, Continental, Sony, Innolux, Epson, Bosch, Innolux.
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Nearly 100% of Valuation backed by hard assets= Cash (S$0.257) + Investments (S$0.053) + Investment properties (S$0.120) + buildings and land only in PPE (S$0.07) = S$0.498
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Strong Free cashflow generation- average S$0.043 of free cash generated/year in the last 3 FYs – notwithstanding any dividend payment and if Innotek maintains its cashflow generation, it will take about 5 years for Innotek’s market cap to be fully backed by $.
Huge turnaround attributable to savvy management - who came on board in late 2015, and the turnaround has almost been immediate, with Innotek successfully reversing from a loss in 2015 to a profit in 2016, before nearly doubling in profit (from 2016) to S$20m in 2018.
It is always reassuring to see Management who are always adapting to market trends and not resting on their laurels, as in the case of Innotek – With good foresight, Management had diversified into heatsinks, automotive displays earlier on, which had helped to soften the impact of a declining trend where tradition metal TV bezels are being replaced by plastics.
Similar thing can be said by management’s decision to set up a new facility in Thailand to be nearer to its customers (short term pain, long term gain), regaining market share for its office automation segment.
Innotek is now looking to be an even more integral part of its customer’s supply chain as it transits from single component supply to assembly.
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He doubled his stake in Innotek in July 2018 to 11.5%. |
Management put his money where his mouth is. In 2016, Mr Lou (CEO) owns about 5.3% stake in Innotek.
He doubled his stake in the group in Jul 18 to 11.5% by acquiring shares at S$0.40/share - tying his fate even more closely to shareholders.
50% rise in dividends. With the improvement in profit, Innotek has rewarded shareholders with a 50% rise in dividends to S$0.015 for FY18, (a needle in its haystack of S$0.31 worth of $$)
Stellar 1QFY19 results with a 29% rise in gross profit, and a surge in net profit (amidst a low base) to S$3.9m.
Free cashflow generated was super strong too (S$0.054/share). However, the share price has fallen 15% since, on concerns of a weaker outlook from a slower Chinese economy and greater macro uncertainty.
What we think: While the outlook is more murky for cyclical stocks such as Innotek, its low valuation (one of the lowest among its peers, and also happened to be backed nearly 100% by hard assets (thinking from a liquidation perspective), gives Innotek a high margin of safety for investors.
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Article republished with permission from Gem Comm website
