■ 9M15 revenue in line at 71% of our/consensus full-year; we expect a stronger 4Q.
■ 9M15 gross margin expanded to 29.8% on stronger US$ and operational efficiency.
■ 9M15 net profit was above expectations at 83%/80% of our/consensus numbers, helped by FX transaction gains
3Q15 topline dips 3.3% yoy and 4.3% qoq, but within expectations
● The slight drop in 3Q15 revenue was largely due to a decrease in orders from the automotive (AU) segment (-6.8% yoy, -4.1% qoq), but this was partially offset by stronger office automation (OA) sales (+16% yoy, -3% qoq). The AU segment remains the core operating segment, accounting for 78% of 9M15’s sales.
9M15 gross margin rises 4.5% pts to 29.8%
● As a result of favourable currency movements (more than 90% of sales are in US$ vs. operating currencies like RM, THB and Rmb) and improved operational efficiency, 9M15’s gross margins expanded from 25.3% to 29.8%. This was within the range guided by management and in line with our FY15 forecast of 29.5%.
9M15 net profit rises 75% yoy
● Innovalues saw a 61.2% yoy and 13.9% qoq growth in net profit in 3Q15, thanks to substantial margin improvements and FX transaction gains. Finance costs fell 35.2% yoy for 3Q15 as the company scaled back on term loans and finance leases.
Positive outlook still dependent on automotive
● Automotive inventory surplus in China may have embarked on a correction trend after sales in Sep rose for the 2nd consecutive month, reversing the declines seen in Jun-Jul 15. Coupled with strong automotive sales in US and UK, increasing global regulatory standards towards safety, energy-saving and environmental protection will continue to be tailwinds for Innovalues. Completion of the relocation of OA operations from China to Malaysia should translate to lower operating expenses after 3Q15.
● We keep our ADD rating, DCF-based target price and earnings forecasts unchanged, pending the analysts’ briefing tomorrow. (Read Report)
Read Related Report
1) Innovalues - 3Q15 Beat. Stronger Outlook Ahead by Maybank Kim Eng Research, published on 5 November 2015
Source : CIMB Research