gsg_stock discussion

Stockwatch- Innovalues Precision (Singapore) BNP report 5 Oct 2006 target price $1.40

We paid another visit to Innovalues’ Pasir Gudang facilities which was bustling with activity, suggesting that its office automation and automotive businesses remain strong. The HDD segment, which is manufactured in Thailand, is the only weak spot. We have raised our target price to SGD1.40 as we rollover our valuation to 2007. Maintain BUY.

OA and automotive in full ramp
*OA and automotive progressing as expected.
*HDD segment is weaker than expected.
*Maintain BUY with revised target price of SGD1.40.

OA and automotive progressing as expected
We recently paid our second visit (first visit in June 2006) to Innovalues’ manufacturing facilities in Pasir Gudang (Malaysia). To recap, this plant manufactures brake sensor parts for Sensata (formerly TI’s sensor unit) and printer parts for Hewlett Packard (HP) and other office automation (OA) customers. As expected, the facilities were bustling with activity in this seasonally strong period.

For its office automation business, we understand that Innovalues has begun work for another printer customer in August 2006. The group manufactures shafts for laser cartridges for this customer with volumes expected to ramp up significantly next year. We estimate that this customer could potentially contribute some SGD10-12m to group sales next year. However, Innovalues has seen a delay in the production of rollers and shafts for HP’s wide format printers which is now scheduled for 2Q07. We understand that HP currently purchases about USD20m worth of such parts from Spain and has decided to source from Asia due to obvious cost reasons.

Innovalues’ automotive business continues in full swing and the group is set to begin production for several new customers. As shown in the table below, Innovalues has a healthy pipeline of new projects ready for ramp, which includes parts for Siemens VDO, Bosch, Hiliite, Luk and a new part for Sensata. This new part was initially scheduled to start production in 3Q06 in China but has since been pushed to next year. All in, we believe Innovalues’ automotive business will remain the major driver for the group going forward. Note that we have not included contribution from new automotive customers such as Hilite and Luk, given the risks of project delays. Hence, we believe there could be upside to our 2007 and 2008 automotive sales projections should the ramp commence as planned.

posted by gsg @ 11:42 AM