Excerpts from analyst's report
Goh Leng Tse, CEO of Innovalues. Photo: CompanyKGI Fraser analyst: Renfred Tay
Innovalues had recently undergone some selling pressure after reaching a high of S$0.94 post its stellar 1Q15 results. The last 2 days (23-24 June) saw the most intense selling pressure, which brought the stock to a 2‐mths low of S$0.72.
No fundamental reason for the sell‐down. Based on our checks with management, and also Innovalues’ declaration to SGX, there seemed to be no reasonable basis for the recent sell‐down in its stock. Management believes that the long‐term underlying fundamentals of Innovalues’ business have not changed and it is performing as expected.
Stock rebounded after its previous correction. Back in March/April 2015, before Innovalues’ 1Q15 results was announced, its stock price hit a 52‐ week high of S$0.73 and retreated 12% to S$0.645. The retracement of its stock price back then was similarly not triggered by any changes in company fundamentals. Innovalues resumed its rally following the release of its 1Q15 results, which beat consensus and our estimates. We think history could again repeat itself if Innovalues continues to produce quarterly results that meet or beat our expectations. 2Q15 results will be due in August 2015.
Stellar 1Q15 results prompted us to raise our forecast and TP. In our previous results update note, Innovalues’s 1Q15 results clearly blew past our expectations. The key cause for the earnings beat was due to its much better than expected gross margin, which we believe should be sustainable given that the automotive components that Innovalues produces are for mission critical functions requiring a high degree of precision. We see no reason for us to make any adjustments to our forecasts, which were stepped up in our previous note.
Reiterate investment thesis and TP. We continue to like Innovalues for its 1) expected revenue growth from existing and potential AU projects and the overall industry growth in the U.S. and China; and 2) gross margin expansion from high margin automotive projects (from favorable sales mix and improved operational efficiencies) and further labour cost savings once the OA segment completes its move to Malaysia from Shanghai. We continue to peg Innovalues at 14x FY15F P/E and reiterate our BUY rating and TP of S$0.985.
Comments
So perhaps this will cause their auto market to taper off into a downtrend. Some forward looking shareholders have probably decided to take some profits before the downtrend in sales filters down to a downtrend in orders for Innovalues.