Innovalues Limited - Half-year dividend just doubled

Results in line with expectations 
Innovalues’ 1H15 net profit of S$6.2m and revenue of S$58.6m formed 50% and 47% of our estimates (revised up last quarter), respectively. Revenue from the automotive segment (AU) formed 46% of our estimates, while revenue from the office automation (OA) segment was higher than expected at 53%. Its half-year gross margin of 30.4% also compares relatively favorably with our full-year gross margin forecast of 31.1%. Innovalues also announced a half-year dividend of S$0.012 per share (double of 1H14’s S$0.006 and 36% of our full-year DPS forecast of S$0.033).

No change to our investment thesis
We continue to like Innovalues for its

1) expected revenue growth from existing and new AU projects from new and existing customers.

2) Gross margin expansion from high margin automotive projects (from favorable sales mix and improved operational efficiencies) and further labour cost savings from the OA segment with its move to Malaysia from Shanghai, expected to be complete by 3Q15.

3) The turnaround in the OA segment will be an added bonus.

No need to panic until fundamentals change
The stock price of Innovalues has rebounded from a recent sell-down. During the correction, we recommended that investors add to their positions as we saw no negative fundamental reasons behind such a steep decline. In our note, we also pointed out that Innovalues had always rebounded from recent corrections. While we think such corrections may continue to occur from time to time, we believe investors should remain focused on company fundaments and steer clear from speculation.


Technical Analysis
Daily Chart
More upside, maintain BUY with unchanged TP
Although Innovalues had triple-bagged since our initiation with a BUY rating in Sep 2014, we believe there is still considerable upside. Innovalues is still far from being the finished article as its automotive products are focused on the strong industry tailwinds of safety, energy saving and environmental protection. We maintain our BUY rating on Innovalues, with a target price of S$0.985, still pegged at 14x FY15F EPS. Key stock price catalysts include strong quarterly results and higher than expected dividend payout for FY15F (we are expecting S$0.033 DPS for FY15F or 3.8% yield). (Read Report)

Read Related Report
Innovalues - No surprises on earnings, DPS beat
Thursday, 6 August 2015
- Maybank Kim Eng Research

Source : KGI Fraser Research

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