Cheong notes that InnoTek’s 1HFY2021 earnings of $7.2 million were in line with his estimates, meeting 41% of his full-year forecast.
“1HFY2021 revenue increased 6% y-o-y, reflecting business recovery from a year ago when the group shut down its factories for two weeks from Jan 27, 2020 in compliance with lockdown measures in China,” he highlights.
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He also notes that revenue for InnoTek’s auto segment increased by a significant 45% y-o-y and is now its largest revenue contributor at 44% of total revenue for 1HFY2021.
Given the half-year results, Cheong is confident that InnoTek can achieve 28% earnings growth y-o-y for FY2021, driven by revenue growth in the auto segment, as well as contributions from new businesses, namely electric vehicles (EVs), healthcare equipment, and gaming consoles.
“We are positive on the recent company update post 1HFY2021 results as InnoTek revealed that it has secured new businesses in three sectors that have higher growth potential and margin,” he remarks.
Cheong expects growth to be further supported by InnoTek’s new Vietnam plant, which is expected to start in 2022. This will be the second overseas plant for InnoTek after expanding into Thailand in late 2018.
He highlights that InnoTek has a strong net cash position of $90 million as of 1HFY2021, up from $35 million as of end-2015, forming around 50% of its current market cap. “InnoTek has been paying out a DPS of 0.5 cents since 2016, and gradually increased this to 2 cents in 2020,” he remarks.
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Based on his estimates, InnoTek is currently trading at 9 times its FY2022 P/E, which Cheong views as unjustified given InnoTek’s resilient business model, high net cash position and high margins as compared with its peers. “Thus, we believe InnoTek should trade nearer to its peers’ multiple of 12 times FY2022 P/E,” he says.
As at 4.38pm, InnoTek is trading down 1 cent or 1.18% lower at 83.5 cents.
