Innovalues

Innovalues: 3Q14 soundly beat expectations. Net profit increased 68.4% y/y to $4.2m, while revenue increased 4.3% to $28.5m, mainly due to increased orders in Automotive segment, offset by orders decline in the Office Automation segment. Bottom line boosted by a 7ppt improvement in gross margin to 25.6% on favourable sales mix and enhanced operational efficiency. Innovalues’ 9M14 turnaround has already exceeded its FY13 full year profit. Even with the solid margin improvement, management still sees room for improvement. Maybank-KE favors this as a growth play, citing 1) market share gain within Sensata’s supply base, 2) a new direct relationship with a major branded auto-maker, and 3) start of mass production for new customers that Innovalues began pursuing two years ago and is now qualified. Stronger earnings will not come at the expense of cashflow. Better materials management should free up cash, which should be used for dividends as capex is expected to be low in FY15e at $5m. FY15e yield is 5.7%. Maybank-KE maintains Buy with TP increased to $0.65 from $0.52.