gsg_stock discussion

Stockwatch- Innovalues Precision (Singapore) CIMB report 5 Oct 2006 target price $1.52

Innovalues Precision - Turning steel into cash

• Our recent Malaysian plant visit reinforced our positive view on Innovalues. The Malaysian plants represent 65% of group capacity, focusing mainly on office automation (OA) and automotive components. All three plants are operating close to full capacity on the back of seasonal demand and new customers and programmes.

• Cost-cutting exercise and yield improvements to bear fruit in 2007. The company has been cutting costs and improving yields and efficiency, which we believe will start to bear fruit in 2007.

• Thailand and China plants also busy with automotive and OA businesses, respectively. The Thai plant is operating at about 80% capacity due to a slowdown in the HDD components business. However, the slowdown has been partially compensated by a surge in the automotive segment. The China facility, which focuses on OA and automotive, is running close to full capacity.

• Maintain Outperform; raising target price from S$1.18 to S$1.52. We have kept our FY06-08 forecasts unchanged but continue to believe that there could be upside to our numbers if the automotive components business takes off. We have also raised our target price from S$1.18 to S$1.52 as we roll over our 13x target P/E from CY06 to CY07. Our target P/E is pegged at a slight premium to its historical average P/E band in view of the healthy 34% earnings CAGR projected for FY05-08. Maintain Outperform, and we see catalysts from evidence of accelerated sales in the automotive sector and potentially solid full-year results.

posted by gsg @ 7:11 PM