Singapore Exchange Ltd (SGX)

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With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

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Asia’s leading multi-asset exchange

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

<p><em><strong>These equity research reports are not written by the SGX.</strong> SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p><h2>Innotek Limited</h2>
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<p><strong>Precision component maker</strong></p>
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<p>■ We initiate coverage on Innotek with an Add rating and TP of S$0.579.<br>■ We forecast prospective dividend yields of 3.95% over FY20-22F which are backed by its strong net cash balance sheet.<br>■ Accretive M&amp;A are upside share price catalysts.</p>
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<p><strong>Established precision component supplier</strong></p>
<p>Mainboard-listed Innotek Limited (Innotek) is a precision metal component manufacturer serving the consumer electronics (TV and display), office automation (OA) and automotive industries. The group has five manufacturing facilities in China and one in Thailand as at end Dec-2019.</p>
<p><strong>Strong balance sheet</strong></p>
<p>In our view, Innotek has a strong balance sheet — it has been in a net cash position for the past five years. From a S$34.9m net cash (including marketable securities) balance in FY15, Innotek’s net cash (including marketable securities) balance has grown to S$69.3m as at end Dec-2019. As a percentage of market cap, net cash (including marketable securities) as at end Dec-2019 accounted for 80.6% of its market cap.</p>
<p><strong>Dividend payments have resumed</strong></p>
<p>Innotek has been free cash flow (FCF) positive since FY16. The company did not pay any dividends in FY15 as the group recorded a loss of S$16.3m that year and chose to be prudent in not paying a dividend. Innotek resumed its dividend payments in FY16 with a DPS of 0.5 Scts. DPS was raised to 1.0 Scts in FY17 and 1.5 Scts for FY18, and maintained at 1.5 Scts for FY19. The company does not have a formal dividend policy.</p>
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<p><strong>Key risks</strong></p>
<p>Key risks include: a) a deterioration in customer demand due to the escalation of the Covid-19 outbreak; b) foreign exchange exposure risk (Innotek hedges its exchange rate exposure where appropriate), and c) negative impact from the US-China trade war.</p>
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<p><strong>Initiate with Add</strong></p>
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<p>We initiate coverage of Innotek with an Add recommendation and a target price of S$0.579. Our target price is based on a 0.78x FY20F P/BV multiple, derived from the Gordon Growth Model (COE: 8.8%; ROE: 7.0%). We project dividend yields over FY20- 22F of 3.95% (assuming Innotek maintains its FY18-19 historical DPS of 1.5 Scts per annum) Downside risks include a deterioration in customer demand due to the escalation of the Covid-19 outbreak. Re-rating catalysts are accretive M&amp;A and better-than- expected customer demand.</p>
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These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.Innotek Limited

Precision component maker



■ We initiate coverage on Innotek with an Add rating and TP of S$0.579. ■ We forecast prospective dividend yields of 3.95% over FY20-22F which are backed by its strong net cash balance sheet. ■ Accretive M&amp;A are upside share price catalysts.



Established precision component supplier
Mainboard-listed Innotek Limited (Innotek) is a precision metal component manufacturer serving the consumer electronics (TV and display), office automation (OA) and automotive industries. The group has five manufacturing facilities in China and one in Thailand as at end Dec-2019.
Strong balance sheet
In our view, Innotek has a strong balance sheet — it has been in a net cash position for the past five years. From a S$34.9m net cash (including marketable securities) balance in FY15, Innotek’s net cash (including marketable securities) balance has grown to S$69.3m as at end Dec-2019. As a percentage of market cap, net cash (including marketable securities) as at end Dec-2019 accounted for 80.6% of its market cap.
Dividend payments have resumed
Innotek has been free cash flow (FCF) positive since FY16. The company did not pay any dividends in FY15 as the group recorded a loss of S$16.3m that year and chose to be prudent in not paying a dividend. Innotek resumed its dividend payments in FY16 with a DPS of 0.5 Scts. DPS was raised to 1.0 Scts in FY17 and 1.5 Scts for FY18, and maintained at 1.5 Scts for FY19. The company does not have a formal dividend policy.


Key risks
Key risks include: a) a deterioration in customer demand due to the escalation of the Covid-19 outbreak; b) foreign exchange exposure risk (Innotek hedges its exchange rate exposure where appropriate), and c) negative impact from the US-China trade war.










Initiate with Add




We initiate coverage of Innotek with an Add recommendation and a target price of S$0.579. Our target price is based on a 0.78x FY20F P/BV multiple, derived from the Gordon Growth Model (COE: 8.8%; ROE: 7.0%). We project dividend yields over FY20- 22F of 3.95% (assuming Innotek maintains its FY18-19 historical DPS of 1.5 Scts per annum) Downside risks include a deterioration in customer demand due to the escalation of the Covid-19 outbreak. Re-rating catalysts are accretive M&amp;A and better-than- expected customer demand.










Non-SGX Report: Innotek Limited: Precision Component Maker

Innotek Ltd

Non-SGX Report: Innotek Limited: Precision Component Maker