gsg_stock discussion

Stockwatch- Innovalues Precision (Singapore) Prospect and Business Outlook presented in 1H Results

Extracted from the press release on Innovalues' 1H results:

Prospects and Future Plans
The industry outlook for the automotive industry is bright and Asia is becoming an increasingly important place to source for automotive components by the European and US car parts manufacturers. According to a report by consulting firm KPMG on the automotive components industry, the market value of the sector in China alone is expected to reach USD 13 billion by 2007. This trend is expected to be sustained as Asia begins to export higher value-added components for the automotive sector.

Mr Goh commented, “Going forward, our AU segment will continue to be one of the key growth drivers for the Group and we see great opportunities in this segment. Over the past few months, we have received an increasing number of enquiries from interested parties for possible strategic business alliances. We also see potential in our OA segment as we continue to secure projects with higher value-add. As for our HDD segment, we are currently working with other major players in the industry to increase our sales from this segment.”

As part of the Group’s plans to enhance its market presence in the region and to cope with the increasing orders, Innovalues expects to invest an estimated S$13 million in property, plant and machinery in China, Malaysia and Thailand in the current financial year. Some S$8 million and S$2 million will be used to spur the growth of the AU and OA segments respectively. To cut down on the volatility of the raw material prices, Innovalues will also be constantly sourcing for and working closely with its steel suppliers to monitor the steel market conditions.

Barring unforeseen circumstances, the Group expects its performance for FY06 to exceed its FY05 results.

From Innovalues' slide presentations on its 1H results:

Business Outlook

Automotive (AU)....
1. Expect to contribute abt 20% of Group's FY2006 revenue (up from 10% in FY2005)
2. AU sales from 2003 to 1H 2006 was for Sensata (formerly unit of Texas Instrument) only
3. Sensata
- expect high double digit growth for growth for existing 2 projects (Braking sensors and Occupant weight sensors) up to FY2008
- new projects transferring to this region being awarded
4. Other AU customers
- Siemens VDO
- selective plating technology know how transfer from customer
- Other US and Europe car component manufacturers with high market shares outsourcing to this region
- a few projects in qualification or advanced discussion stage

Office Automation (OA)....
1. Healthy growth in OA segment
2. Hewlett Packard (HP)
- expected increasing orders from HP's new printer platform, which requires 3 times as many rollers as before
- new projects
3. Other major players- continue to see growth and new projects from various customers
4. New high volume customer- for their laser printers which require more rollers

Hard Disk Drive (HDD)....
1. expect sales and profit contribution to reduce yoy of about 25%
2. major customer drops in sales volume and cut down of outsourcing requirement
3. already start supplying to a new major HDD player, however, contribution not significant this year
4. Group to target other major HDD players
5. switch existing HDD machinery to run OA and AU parts

China....
1. Our presence in China provides business opportunities
2. Many customers and their CMs have presence in China to take advantage of the lower manufacturing costs and to be near the potential market
3. We have plating license which the issue of license in Shanghai is restricted
4. China Government is encouraging sourcing of car components from the local market and may impose custom duties for components imported into China starting mid 2007

Diversification....
1. Innovalues' business is well diversified
2. 3 major business segments- AU, OA & HDD
3. AU business is stable and not seasonal
4. Within each segment there are a few major existing or potential customers
5. Some of our machinery can be switched for different business segments

Challenges

Competition....
1. There is indeed competition and price pressure, but....
2. our size and volume give advantage to bring in major palyers and projects
3. we are well positioned for HDD and AU which have high quality requirement, long qualification period and high cost of qualification
4. AU market is big and many function critical and safety related components in a car
5. we have good business relationship with customers

Others....
1. weakening US$ against asian currencies
- our assets and liabilities are naturally hedged
- we actively entered into forward and currency structures for transaction requirement
2. rising cost of borrowing
- we have favourable machinery and material purchase terms
- we manage our working capital and stock holding

Summary

1. We are growth business supply components for AU, OA and HDD
2. We are positive in the next few years' outlook
3. The Group will continue our drive to improve margin and control our costs
4. FY06 expected to be better than FY05, barring any unforeseen circumstances

posted by gsg @ 3:01 PM