Innotek: the company stay optimistic abt its long-term prospectsInnoTek
InnoTek, trading at \$0.43, has been navigating a transformative journey since selling its core disk-drive components business over 15 years ago. The precision components manufacturer pivoted to grow its small stamping business and has since diversified into promising sectors such as electric vehicles (EVs) and graphics processing unit (GPU) servers, which are riding the artificial intelligence (AI) wave. These efforts are now bearing fruit, with revenue for the first half of 2024 rising 30.9% year-on-year to S\$121.6 million.
The diversification strategy has been driven by growth in GPU server-related projects for AI applications, which now account for about 27% of InnoTek’s revenue, up from 14% a year earlier. The automotive segment remains its largest contributor, accounting for 33% of revenue, bolstered by the strong EV market in China. Other segments, including office automation, TVs and displays, also contribute significantly to its topline.
However, profitability has taken a hit, with net profit for H1 2024 slipping 8.3% to S\$3.2 million. This was attributed to extraordinary costs linked to shifting business strategies and geopolitical tensions driving the “China+1” manufacturing strategy. InnoTek has been strategically expanding its footprint in ASEAN countries, with facilities in Thailand and Vietnam, and plans to further invest in Malaysia due to its favorable infrastructure and skilled workforce.
Despite short-term challenges, the company remains optimistic about its long-term prospects. With a market capitalization of \$100 million, InnoTek trades at 0.6x its book value of 76 cents. Its strong balance sheet, featuring net cash of \$56 million, supports a sustainable dividend payout of 2 cents per share, translating to a yield of 4.6%. Analysts recommend an “Accumulate on Weakness” strategy, citing the company’s strong positioning for longer-term growth.
