Friday 29 Mar 2024
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SINGAPORE (Oct 13): Innovalues, the manufacturer of automotive (AU) and office automation (OA) components, is on track to attain a 10-12% rise in FY16-17 sales with gross margin improvement of up to 32%, says CIMB analyst Ngoh Yi Sin in a Wednesday note.

CIMB’s sales growth forecast is led by stronger demand for pressure transducers from Sensata and higher sales of VW cars in China. New customer, Cummins, could also become more significant from FY18 onwards.

“We forecast FY16F gross margin of 32.0% (vs 31.1% previously), better than FY15’s 30.7% (1H16: 31.4%) as stronger US$, greater volume and higher productivity efforts should mitigate any potential cost-down from customers,” says Ngoh.

Ngoh says following a recent visit to SGX-listed Spindex, she expects to see continual growth in the automotive segment, gross margin improvement via factory automation and higher effective tax rates due to higher output from China and expiry of most tax benefits.

At the moment, AU/ OA sales for Innovalues is split at 80%/20%. “Spindex and Innovalues have similar AU customers, which accounted for 20-30% of Spindex’s FY16F revenue,” adds the analyst.

Meanwhile, Innovalues remains an M&A target. Taking reference from past transactions with valuation range of 12-16x, Ngoh thinks Innovalues could be valued between S$0.91 to S$1.21 per share.

“We first highlighted in Jan 2016 that an offer was made by a subsidiary of China Baoan Group to HK-listed IPE Group, valuing it at 16.0x TTM P/E. Recall also that MMI Holdings was acquired by KKR in 2007 at a historical P/E multiple of 12.3x,” says Ngoh.

CIMB is upgrading Innovalues to “buy” with higher target price of S$1.03.

The counter is up 4 cents at 94 cents.

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