Innovalues

Innovalues: Coverage appears to be ramping up on Innovalues, with the counter receiving its third initiation coverage by a local broker within a month. The latest initiation rates Innovalues at Buy with TP of $0.45, based on 9.0x FU15E P/E, and follows after Maybank-KE’s recent initiation on the group (Buy: TP $0.52). MBKE believes that 2014 could be the comeback year for the automotive precision engineering parts manufacturer, having reached a critical mass that allows it to leverage on high-volume, long product life cycle and stable pricing. Over FY14-16, its automotive segment, which contributes >80% revenue, is set to lead net profit gains with sales growth of 18% and 15% forecasted for FY14 and FY15, supported by industry expansion, growth in market share and stouter margins. Meanwhile, high barriers to entry and penetration (stringent qualification and auditing, long gestation to reach critical volume) shield Innovalues from stiff competition. Operationally, margins are likely to improve from the reduction in material wastage and higher labour productivity. The stock is also appealing as a potential dividend play. The group is expected to increase its dividend payout by 50% to 1.8¢ in FY14 and further to 2.5¢ in FY15, translating to a potential yield of 7.5%. Innovalues currently trades at just 5.9x FY15 P/E.