Brokers' take: UOBKH raises InnoTek target price on China's shift towards EVs

UOB Kay Hian (UOBKH) has raised its target price for InnoTek to S$1.20 from S$0.82 previously while maintaining its "buy" call.

In a Monday report, the brokerage noted that China's auto industry is shifting towards electric vehicles (EVs), with sales likely to increase 80 per cent year on year to reach two million units in 2021. This will likely benefit Innotek, which gets more than 30 per cent of its annual revenue from China and also serves EV manufacturers through its precision metal components division.

Moving beyond single-part manufacturing, the mainboard-listed company has also secured initial orders for parts assembly to deepen its value proposition and establish its foothold within the segment.

According to analyst John Cheong, InnoTek is set to benefit from strong recovery of auto sales in China, which has reached pre-Covid-19 levels, and expected recovery of office automation (OA) demand in Thailand, where the company has established an OA factory.

UOBKH is also optimistic on InnoTek for its strong balance sheet. According to the brokerage, the manufacturing company is in a net cash position which represents about 44 per cent of its market cap. It has also been paying out an increasing dividend per share, which reached S$0.02 last year.

The brokerage forecasts InnoTek's earnings per share to grow by 39 per cent year on year in 2021.

As at 1.48pm, shares of InnoTek grew 2.8 per cent or 2.5 cents to 92.5 cents.