InnoTek

[kelvesy]

InnoTek signed a new taiwan customer called AUO, so I believe their segment called precision sub-assembly is supplying to InnoLux and AUO. Both of them are listed, and doing well. Bear in mind that InnoTek does work for tablets, phone and TV as well. I am in alignment with sgmystique because Mr Lou seems busy and wants to focus on the business more than investor relations effort. That should be the way. While InnoTek does not seem to be a strong competitive advantage now, I do belive they are building it as we speak. The valuations seem reasonable, and that could be the reason that's holding up InnoTek's share price... there weren't a lot of sellers.

Totally no analyst coverage in this company.

- vested -

Skyworth's recent slides over here: http://investor.skyworth.com/attachment/...956_en.pdf

Innolux: ftp://inxowftp.innolux.com/1Q17_Slide_Eng.pdf

Cellphone IC Sales Will Top Total Personal Computing in 2017http://www.icinsights.com/data/articles/documents/987.pdf

[kelvesy]

I pulled this information from InvestingNote, apparently, someone did an analysis and shared: https://ufile.io/w0q1t

My disagreement is the usage of P/B and EV/EBITDA utilised, I feel depreciation is a real cost, so I opted for EV/EBIT instead.

[Value Explorer81]

"Price is what you pay and value is what you get." The relentless pursuit of undervalued fundamentally sound companies is the mission of every value investor. This slide here has given a good clear understanding of the peer valuations in the market and by comparing them we know whats over or under valued. 

Innotek Trading at P/E of 5.6x (lowest among the peers) and Fu Yu trading at 14.8x (highest among the peers).

[mslee888]

"Price is what you pay and value is what you get." The relentless pursuit of undervalued fundamentally sound companies is the mission of every value investor. This slide here has given a good clear understanding of the peer valuations in the market and by comparing them we know whats over or under valued. 

Innotek Trading at P/E of 5.6x (lowest among the peers) and Fu Yu trading at 14.8x (highest among the peers).

I do agree Innotek seems undervalued at the moment. But the comparison may not be fully accurate as each operates in a different biz. Innotek is more on precision components and tooling, whereas Fuyu is more into injection molds and plastics.

[kelvesy]

Agree with mslee888. Fischer Tech also does platics injection molds. For a more accurate comparison, CDW Holding comes in mind. However, CDW Holding's fundamentals are weak.... an individual should not lump CDW together with InnoTek.

Sunningdale is in between, doing metal and plastics.

With Mr Kuang on board, he grew the sub-assembly segment by 50% last year, and that is the segment with the highest margin and most impact on the overall bottom line. Checking TV panel manufacturers sales, I do believe their next quarter is likely to do well.

I do not understand why Mr. Market assigns such a low valuation to "precision components and toolings" while a higher valuation to "injeciton molds and plastics". Perhaps, it is the value-add? Yet, I do not see a vast difference in their margins. Is the market wrong? I can be rest assured about the valuation of InnoTek when I entered and who is running InnoTek.

Happy investing!

[holymage]

One pile of cash in the bank is worth two in the bush.

Sent from my SM-G930F using Tapatalk

[kelvesy]

Hi holymage, are you referring to InnoTek's cash balances? Is there other aspects that investors should take note of InnoTek?

http://www.innolux.com/Pages/EN/Investor...es_EN.html

http://www.auo.com/?sn=107&lang=en-US

I hope that InnoTek is able to deliver more work for these customers who are growing well.

[holymage]

Hi Kelvesy, actually I am referring to Fu Yu's cash balances.

Fu Yu has 101 million in net cash, while its market cap is 149 million (67%), and the company has been paying generous dividend yield. This is my best guess for Fu Yu's higher P/E ratio.

I think there are 4 main reasons that affects market valuation of a company.
1) Net Assets
2) Quality
3) Growth Rate
4) Opportunity Cost due to Interest Rates

Sorry, but I have no insight on Innotek or any of the companies in the above powerpoint.

[kelvesy]

Thanks holymage for your sharing.  

InnoTek Q1 results: http://infopub.sgx.com/FileOpen/Q117Anno...eID=451243

Fu Yu Q1 results: http://infopub.sgx.com/FileOpen/Fu%20Yu_...eID=452733

Here's my take on it... Cash is good because it offers buffer to the balance sheet, should any adverse economic conditions appear. Or it allows the Company to seize M&As opportunities if the target fits the management's criteria. Both InnoTek and Fu Yu has the issue of having too much cash on the balance sheet. Cash itself returns lesser because it is just earning interest income, it is better to put it to work to get a higher ROE.

Another thing that caught my eye was Magix (InnoTek's indirect subsidiary) was able to negotiate with a major customer for reduction in credit term from
120 days to 90 days. As a result, Magix receivable did not increase significantly in relation to its sales. Better cash flow turnaround.

[Uncertainty?] On 29 Oct 2014, InnoTek formed a JV ("Anhui KM Technology") with Shenzhen Konka Precision Mould Manufactory where Konka holds 51% and Mansfield holds 49%. Their principle activities are R&D, manufacturing and sales of precision metal parts, hardware fittings and metal assembly.

http://innotek.listedcompany.com/newsroom/it291014.pdf

The JV has a total registered capital of 20m RMB with an aim of diversifying customer mix and improve overall utilisaiton of resources. InnoTek's contribution is 9.8mil RMB yet the returns are dismal. For FY2016, it generated $63k profit. For FY2017 Q1, it made a loss of $24k. Hope that the management clarifies further on the progress of this JV.

InnoTek's Net cash is around S$49.9mil. Sizing up against market cap (using outstanding shares less treasury shares) of 84mil, it is 59% cash. 

Looking closer to Fu Yu's FY2016 results, there was a S$3.5m gain on currencies which is non-core. Likewise, InnoTek has S$1.1m gain on currencies which is non-core as well. Stripping exception items, here is what I got:

InnoTek (ROE, PE, PE ex Net Cash)
8.3%... 8.1x.... 3.27x

Fu Yu (ROE, PE, PE ex Net Cash)
4.6%.... 18.9x....  5.67x

Just looking at this two metrics, InnoTek should be trading at a higher valuation despite it holding lesser cash. Shouldn't Mr. Market take note of this difference and re-rate InnoTek upwards?

[holymage]

Agree with your opinion on cash.

Personally, I would pay for earnings than assets. But I suppose some investors prefer Graham's style of investing. It is somewhat easier to valuate based on assets, especially cash (if it is non-imaginary). Although a company can be a value trap, should management are capital destroyers or assets are trapped within the company. On the other hand, it is easy to overpay for earnings growth.

An adjusted ROE ex cash comparison might show another perspective, with the assumption that the company does not need that much cash for working capital.
Anyhow, purely based on your number crunching, it does looks like Innotek is slightly more undervalued based on core PE ex net cash.
Assuming all else equal (risk, moat, growth, quality), guess Mr. Market will rerate Innotek in time to come?