Added InnoTek to the Strategic Section of the Investment Portfolio. This is the first stock that is not a Reits in the Strategic Section since 2015. At first was thinking should it be put into the Incubator Portfolio but since its business is quite similar to Valutronics, it doesn't make sense to put it there. Thus, placing it in the Investment Portfolio. Next, given that am intending the accumulate at $0 or minimum cost, thereby putting it in the Strategic Section is more appropriate than the non-Strategic Section.
Company Background
The Company was incorporated in Singapore on 28 November 1995 under the name of Magnecomp International Pte Ltd and adopted the name Magnecomp International Limited when it was converted to a public limited company on 6 December 1997. The Company was listed on the Mainboard of the SGX on 7 January1998. The principal activity of the Company is that of investment holding. When it was listed in 1998, the Group comprised two operating divisions : (1) Data Storage Component Division, which specialized in Suspension Assemblies and related components for the hard disk drive industry and ; (2) Office Automation and Consumer Electronics Components Division , which specializes in key precision stamped components, sub-assemblies and commercial tooling for both the office automation and consumer electronics industries. In 2005, the company merged its Data Storage Division with Magnecomp Precision Technologies Public Company Limited (“MPT”, formerly known as K.R. Precision Public Company Limited) , a company listed on The Stock Exchange of Thailand, specialized in the manufacture and sale of suspension assemblies. The Office Automation and Consumer Electronics Components Division comprises Mansfield Manufacturing Company Limited (“MSF”) and its group of Companies. In 2007, the Company divested its interests in MPT and following the disposal of MPT, changed its name to InnoTek Limited with effect from 22 November 2007.
As of now its business model, InnoTek is a precision metal components manufacturer that serves the office automation, automotive, and TV and display industries. In fact is it the sole source for Sony's TV components.
Financial
Due to the Covid-19 pandemic, its FY20 revenue was down 1.9% to S$183.2M while net profit dropped 16.7% to S$13.9M. The weakness mostly was in 1H20 and in 2H20, it managed to do a turnaround registering as it net profit was up 13.5% to S$10.1M.
Its 1Q21 managed to register a net profit of S$2.47M compared to a loss of S$1.05M in 1Q20.
According to SGX website, its latest financial aspect managed to register the followings :-
1. Cash S$91.8M vs Net Debt S$68.43M
2. ROE = 8.185%
3. Current Ratio = 2.722
4. Quick Ratio = 2.374
5. Net Profit Margin = 7.57%
6. Price/Book Value = 1.119
7. P/E Ratio = 14.476
8. Dividend Yield = 2.273%
Definitely not a very strong set of data given which company is not affected by the pandemic. However, it wasn't a terribly weak set of data too.
Investment Objectives
There are couple of objectives am looking forward to. One being its business prospect as InnoTek is targeting to grow its profitability by 50% in the next 3 to 5 years. It might face some problem in the short-term due to current global semiconductor shortage as it is forecasts the shortage to abate from 4Q21. InnoTek in certain aspect is partially insulated from the shortage as it has previously stocked up on its raw materials since Sept 2020. Most SGX-listed tech stocks are trading at an average P/E of 18x and P/B value of 4.1x while InnoTek is only at 14.476x and 1.119x respectively. There is no doubts quite an upside to come along.
The other objective is targeting a potential takeover. Its 2 major shareholders collectively is holding around 48% stake. Thus, either privatization or takeover should not meet with difficulty. For SGX-listed tech companies that recently received takeover offers, the average valuations of the various takeover offers stood at 14.7x P/E, 1.7x P/B and 6.8x EV/EBITDA. InnoTek on the other hand is currently priced at 14.476x P/E (or 10.9x Forward P/E), 1.119x P/B and 4.6x EV/EBITDA. Can't deny should there be a possible takeover or privatization, shareholders shouldn't be at a losing end based on current market share price.
To further enhance my investment gain, I am aiming at accumulating at $0 cost (best scenario) or as low vested capital as possible. Either one of the objective, doubt I will lose out.
