V R UV

Wayne Ho
De Zien
Rui Yang
Joey Ting
Wend Li
Jackson Yang

Disclaimer
This report and its contents contain the opinions and ideas of the authors. It
is not a recommendation to purchase or sell the securities of any of the
companies or investments herein discussed. The report is distributed with the
understanding that the trainers, analysts and their associates are not
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The trainers, analysts and associates specifically disclaim any responsibility
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This report is meant solely for use by the recipient and is not for circulation.
All rights reserved.

Content
Right Business
1.
2.
3.
4.

Core Business
Competitive Advantage
Growth Drivers
Business Risk

Right Management
1. Board of Director Profile
2. Remuneration
3. Shareholders Statistic

Right Valuation
1. Numbers
2. Valuation

Right Business
Core Business, Growth
Drivers, Business Risk & Peers
Comparison

Core Business

Company Background
- Incorporated in 25 Apr 1997
- Listed in SGX on 02 Mar 2001
- Market Capitalization S$295.97Mil (16
May 2016)
- Hire near 1,600 staffs
- Company type Fast Grower

Corporate Subsidiaries

Core businesses in 1997

Innovalues
Limited
Office
Automation
(OA)

Automotive
(AU)
Industries

Hard Disk
Drives (HDD)

Core businesses in 2009

Innovalues
Limited
Office
Automation
(OA)

Automotive
(AU)
Industries
1%; 1%

44%; 44%
55%; 55%

REVENUE

Hard Disk
Drives (HDD)

Core Business in 2011

Innovalues
Limited
Automotive
(AU)
Industries

Office
Automation
(OA)

Others
Surface treatment
services eg
electroless nickel
plating, zinc
phosphating and
hard anodizing

Customers

Business model - AU segment

Produces components for end-products such as
sensors (global smart sensor market is largely
driven by the Automotive (21%) and Industrial
(37%) industry)
Environmental
Safety / Control

Energy-saving

Automoti
ve
Microfuse
d Silicon
Strain

Engine oil
control
valves
Hilite
Internatio

Protection

Cylinder
Pressure
Sensors
Sensata Volkswag

OA segment
Focuses on the manufacturing of rod
carriages and printing rollers, as well as
roller assemblies.

Business model (in automotive

segment) Supplies End Products

Innovalues supplies to Tier 2 clients in the automotive

parts supply chain

Growth Drivers

CAGR
10.4%

CAGR 24
%

Growth Drivers - Summary

Environment Changes
Stringent standard on emission control
Automakers looks for new solutions
Safer cars required

More sensors required Safety

Sensors market growth across all
ranges of vehicles

Competitive Advantage
(CA)

CA 1 Productivity & Capacity

Improved labour productivity.
1 worker operate 2 machines => 8
machines

Improved machine productivity.

Enhanced existing machines => Triple
its output.
Modified
a USD 300k
lathe, resulting
in
Productiv FY10
FY15
Changes
higher
output than a USD 1.8 mil
ity
Metrics
machine
No. of Staf > 2,000

~ 1,600

- 20 %

Area
Capacity

50,000
sqm

-14.7 %

58,600
sqm

150
100
50
S$ milions
0

Revenue
Others
OA
AU
Year
Plant & Equipments

S$ Million

60

30

40

20

20

10

Year
Value

Purchase

CA 2 High Entry Barrier

Long qualification time (cost & stringent
standard)
Consistency quality of parts

Human life
High damage / recall cost
Long product life cycle
Tolerance +/- 0.001 mm

Capacity to grow
High productivity
Multiple factory locations

CA 3 Business relationship &

Value Add
HP
1 of the only 2 approved suppliers for rollers
New printers. 2-3 rollers => 7-8 rollers

Hillete
Help reduce manufacturing cost continuously
(~50%)
Assist to improve competitiveness
New projects (consolidate supply chain)

One stop solution => Synergize

Design, manufacture, surface plating, heat
treatment & etc

Business Risks (BR)

BR 1 Geographical

BR 2 Diversification
Revenue
100%
Other
OA
AU

50%
0%

2010

2011

2012

2013

2014

2015

Year

Net Profit (%)

100%
80%

Other
OA
AU

60%
40%
20%
0%

2010

2011

2012

2013

2014

2015

BR 3 Top customers
Revenue
100%
90%
80%
70%

63.2%

56.3%

45.6%

44.6%

40.6%

44.3%

60%
50%

13.1%

40%
30%

9.8%

20%

11.4%

10%
0%

11.2%
11.7%

18.2%

15.7%

20.8%

23.1%

2010

2011

2012

14.5%
20.1%
20.8%
2013

15.6%

10.8%

16.6%

13.4%

27.2%

31.5%

2014

2015

Others
No. 3
No. 2
No. 1

Year

BR 4 Default payment?
Revenue vs Receivables
120

30

100

25

80

20

60
40

15
S$ Millions
10

20

2010 2011 2012 2013 2014 2015

Revenue

Years

Receivable

BR 5 Raw materials

BR 6 Currency Risk

BR 6 Currency Risk (Contd)

Exchange Rate Adjustment

6
4
2
S$ Millions
0
-2
-4

Operation
Others
Accumulative
Year

BR Listed by Management
Business Risk

Effect

Geographical

Nation wide

Revenue Diversification Industry wide

Influence
?
Risk Level
No

Low

Yes

Medium

Top customers

Company

Yes

High

Credit Risk (Receivable)

Company

Yes

Low

Raw Material Price

Industry wide

No

Low

Foreign Exchange

Nation wide

No

Low

Natural Disaster

Nation wide

No

Medium

Compliance

Company

Yes

Low

Economy Downturn

Industry wide

No

Medium

Inventory obsolence

Company

Yes

Low

Margin call

Company

Yes

Low

Customers Competitors

Automotive
Sensors
Suppliers

New Customers?
Innovalues has been fully qualified by 2
major branded auto makers to supply
transmission-related parts.
Reasonably high order volumes.
Full impact will be felt in FY16E

Innovalues is designing and qualifying for up

to 20 new products with existing and new
customers. Two of the new customers sound
particularly interesting. Management believes
the first has the potential to rival Sensata in
size and importance in a few years time.

Peers Comparison Business &

Profitability

(S$ millions) / %

Innovalu Spindex Interple

es
Ind
x
Venture

Revenue
Profit Before Tax (Include
Exceptional Items)

111.8

121.5

1,332.4 2,678.6

24.3

17.0

85.3

185.8

Cash And Cash Equivalents At End

34.2

26.6

163.7

501.9

Revenue Growth

-1.67

17.961

32.732 7.871

Gross Profit (Earnings) Margin

30.748

24

17.627 11.792

Net Profit (Earnings) Margin

19.028

11.53

5.055

5.871

Quality of Earnings

1.178

1.182

1.482

1.887

Peers Comparison Ratios

Return On Assets
(ROA)
Return On Equity
(ROE)

Innovalu
es

Spindex Interple
Ind
x
Venture

19.901

11.841

5.732

6.219

24.947

16.152

25.287

8.334

Debt To Net Profit

0.182

0.178

6.63

0.797

Debt To Cash Flow

0.154

0.15

4.475

0.422

Net Debt To Equity

n.m.

n.m.

1.058

n.m.

Debt To Assets

0.036

0.021

0.38

0.05

Current Ratio

3.457

2.568

1.126

2.666

Cash Ratio

1.645

0.906

0.282

0.821

RIGHT MANAGEMENT
Board of Directors Profile

Chairman & Chief Executive

Officer
Mr Goh Leng Tse
Founder of Innovalues Ltd
(1997)
Diploma in Business
Management
Over 20 years experience
in precision turned-parts
industry (NMB Singapore,
TNH Metal)

Directors Profile
Mr Pung Tong Seng
Joined Innovalues since 2000, Executive
Director since 2008
Marketing & Business Development functions
MSc. Total Quality Management
Over 20 years experience in electronics &
hard disk industry (Micropolis, Iomega)

Mr Ong Tiak Beng

Non-Executive Director since 1997

Business Support, Insights & Contacts
B.Sc Industrial Engineering and Management
19 years experience in precision
engineering industry

Directors Profile
Mr Anthony Teo Soon Chye
Lead Independent Director, Chairman of Audit &
Nominating Committees. Independent Director since
2005
MBA (Harvard University), BA Economics (NUS)
Vice Chairman of Singapore Chamber of Commerce in
Hong Kong, Adjunct Professor for LKY School of Public
Policy, UNISIM Business School & School of Human
Development
Experienced in banking, consulting, higher education
and business

Mr Liew Yoke Pheng Joseph

Independent Director since 2013, Chairman of
Remuneration Committee
B.Commerce (Accountancy), FCAS, FCCA, CISA, CFE
Over 30 years experience in IT, Finance & Accounting
(Current: GM Business Compliance of Giti Tire.
Previous: Regional CFO, Sage)

Remuneration

otal Director Remuneration: S$2.7M

irector Remuneration is 13% of Profit from continuing operations, net of tax

Remuneration (2009-2015)
4

30
Total Remuneration (S$ Mil)

Net Profits After Tax (S$ Mil)

23.0

Gain from
Insurance Claims
(2012: S$12.5 mil,
2013: S$2.3 mil)

S$ (Mil)

20
15.8

15.3

10

8.7

2
2.5

S$ (Mil)
1.4

1.3

-4.3
1
-10
-14.2

World economic
slowdown, all
business
segments
afected;
Gradually divested
out HDD segment

2007

2008

2009

2010

2011

Year

2012

2013

2014

2015

-20

Loss due to Floods in

Thailand; AU overtook OA,
became major revenue
contributor in subsequent
years

30

20

10

-10

Remuneration (2009-2015)
without factoring in Gain / Loss due to Flood
4
3.5

% of NPAT
Return
ofNetEquity
Total Remuneration (S$ Mil) [A+B]
Profits After Tax (S$ Mil)

30

160%
% of NPAT
30%
23.0
140%
27.90%
Return of Equity (%)
20
25%
120%
22.36%
15.8
20%
100%

Total Remuneration (S$ Mil) [A+B]

4.0
3.0
3
3.5
2.5
3.0
2.0
2.5

S$ (Mil) 2
S$ (Mil)
1.5
S$ (Mil) 2.0
1.5
1.0
1
1.0

143%
Total Remuneration (S$ Mil)
[A+B]
129%

92%

10
74% 6.4 11.30%

2.5
4.55%

1.4
2.56%
-4.3

0.5
0.5
0
0.0
0.0

1.3
2.35% -0.6

10%
60%
5%

2.8 5.39%

-1.57%

2008
2008

40%
0%

30%
16%

2007
2007

20%
-5%
13%

-7.71%
-10
0%
0%
2009
2015 2015
2009 2010
2010 2011
2011 2012
201220132013
20132014 2014
2014
2015
2009
2010
2011
2012

YearYY
ear
ear

15%

S$
(Mil)
80%

0%
-10%

Total
remuneration
increases in
tandem with
better NPAT &
ROE
performance
% of NPAT above
10%, however
its improving
(we prefer
<10%)

Shareholder Statistics
No. 1 Shareholder
(21%)Share
1.3%
9.5% Share

Chairman/CEO has 21% of the total share of the company actions are
more likely to maximize shareholder values.

RIGHT VALUATIONS

Profit & Loss

140

6.7%
CAGR

120

108.5

100

91.8

87.7

113.7

99.3
80.8

79.6

78.8

78.1
76.5 Flat COGS - Improved Gross Profit due to Improved Operational
80
Efficiency

SGD Million

60

40
2011 - Adjusted
for Impairment
20 ($
& Write-Off
13.6M)

2012 - Adjusted
for Insurance
Claims
($ 12.5M)

-0.6

0
2011

2.8
2012

2012 - Adjusted
for Insurance
Claims
($ 2.4M)

> 100%
CAGR
15.8

23.0

6.4
2013

2014

2015

-20
Revenue (Sales, Turnover)

COGS (Operating Expense)

Net Profits After Tax (NPAT)

90

Balance Sheet
82.4

80

70.7

Retained
Earning

70
60

52.0

56.9

50

SGD Million

40.6
40

30
26.2

Profit
Inventory Turn
Open receivables > 90days all within granted
credit term

20

10.7

23.1
12.3

0
2011
Cash and Cash Equivalents

22.8

12.5
11.3

10

2012

30.6

2013

Total Borrowings (Debts)

8.9
2014

3.8
2015

Equity (Shareholder's funds)

Cash Flow
30
Return to Profit + $
12.5M insurance
claim which
25 was
subsequently
reinvested in CapEx
20

SGD Million

15

10.6
108.3

24.3
21.5

18.8
Restoration of
Thailand
Production
Facility

13.7

4.3

2012

19.1

18.0

6.8

2.3
0
2011

27.0

25.6

2013

Profit
Inventory Turn
Open receivables >
90days all within
5.2
granted credit term

2014

Free Cash Flow

Capital Expenditure
Operating Cash Flow (Cash from Operating Activities)

5.5

2015

Dividends
Dividends
1.00

0.68

6.0%
0.50

0.00
2011

6.0%

0.24

2013

2014

6.0%

2012

7%

0.60

-0.50

0.37

6%

2015
5%
4%

-1.00

3.2%

-1.50

2.4%

-2.00

3%
2%

-2.50
1%

-3.00

-3.00

-3.50

0%
Dividend Payout Ratio

Dividend Yield (%)

Profitability
35%

31%
30%

27%

28%

25%
20%
15%

Flat COGS Improved

Operational Efficiencies

19%

11%

10%

0%
-1%
2011
-2%

20%

15%

13%

5%

22%

5%

6%

3%

Well controlled
SG&A

2012

2013

15%

2014

-5%
Gross Profit Margins (%)

Net Profit Margins (%)

Return On Equity (%)

2015

Liquidity Ratios
4.0

3.4

3.5
3.0

2.5

2.5
2.0

1.3
1.5

2.0
1.6

1.5
1.0

1.0
0.50.4
0.3
0.0
2011

0.4
0.2

2012

0.5
2013
0.0

-0.5

2014

-0.2

-1.0
Cash Ratio

Current Ratio

Net Debt / Equity (Gearing)

2015

-0.3

Activity Ratios

2015, despite
in
Receivables
< 30 days
70.5%
31-60 days
19.7%
80 days
61-90
9.5 %
> 90 days
0.3%%

90

84
80

80

82

7068

Days

66
65

65

65

< 30 days
60 46.6%
31-60 days
38.2%
61-90 days
50 13.4 %
49
> 90 days 1.8%

62

66

58
57

53

47

47

40

38
30
2011
Stock Turnover (Days)

64

2012

2013
Debtors (Days)

Creditors (Days)

2014

1.5M Raw
Materials
0.2M WIP
Flat Finished
2015
Goods

Cash Conversion Cycle

10 Steps Criteria
Ste
p

Criteria

Target

Company
2015 vs 2014

Revenue
growth

2 digital growth (if

not from 1 to 2 digital
growth)

CAGR 6.3%

Net Profit
Margin

> 10%

20% (3-year
increasing trend)

Return on
Equity (ROE)

= or > 15%

27% (3-year
increasing trend)

Debt to Equity
Ratio

0 (ideal) if not 0.5 the

most

<0

Current Ratio

2 (ideal) or at least
1.5

3.4 (5-year
increasing trend)

Cash Ratio

1 (ideal) if not min.

0.5

1.5 (5-year
increasing trend)

Price to
Earning Ratio
(PE)

< 10

11.31

Price to Book
or

less than 0.65 for

Asset Play only

NA (not asset play

company)

Green
Pass
Red - Fail

Valuation

Revenue CAGR is > 6%. Hence take a conservative growth rate

of 6%.
Singapore bond 10-year interest is 2.55%. Used as a basis of risk
free rate.
Intrinsic Value $ 0.93, 14% margin of safety from current $ 0.80.

Summary
Right Business
Core Business Changed, focusing on Automotive business. On
the right track
Strong growth drivers
Irreplaceable competitive advantage
Business Risk Mitigating
Good GPM, good ratios compared to industry peers

Right Management
Experienced team (combined industry expertise of >60 years)
Aligned with shareholders interest
Management owns 30% of total share
Total remuneration increases in tandem with better NPAT & ROE results

Improving % of NPAT

Summary
Right Valuation

Revenue shows 6.7 % CAGR but COGS is flat at <$ 80M.

Net profit 102% CAGR for the past 4 years.
Increasing Cash, Decreasing Debts Increase in current
ratios and Cash Ratios.

Higher profit
Lower Inventory Turn
Improved Receivable Aging
Delay in payables to 82 days
Controlled SG&A

Improvement in top line, coupled with operational efficiency

has made this a solid company.

THANK YOU