KEVIN'S take on HOCK LIAN SENG, INNOTEK

The following are the views of Kevin Scully, chairman of NRA Capital, which were posted on his blog this morning and are reproduced with permission

Hock Lian Seng - reports Q1-2010 net profit of S$7.7mn up 79%.....ahead of forecasts......an undervalued stock waiting to be discovered

Hock Lian Seng reported its Q1-2010 results last night. Revenue rose 5% to S$61.7mn while net profit was up 79% to S$7.7mn.

Excluding the profit from the sale of investments, net profit growth would have been 33% mainly from an expansion of margins. EPS was 1.5 cents with NAV of 15.8 cents.

Current order book is S$522.7mn which can last for another two years but HLS usually secures about S$200-300mn in new order per annum so this order book would be a nice buffer.

Gross cash is S$156mn or about 30.5 cents per share which means that at the current share price - the business is for free.

I still like the stock but it would probably take the award of a new contract to get the share price moving and rerated nearer its peer group in terms of PER with the likes of Wee Hur and OKP.

Innotek delivers net profit of S$3.84mn in Q1-2010 compared to a loss of S$0.78mn in Q1-2009......comfortably on track to meet my forecast for 2010

For 2010, I was looking at Innotek to report strong earnings growth over its net profit of S$9.4mn in 2009. 2009's profit came on the back of a 14% decline in revenue, ie cost cutting.

The story for 2010 was top line growth and a maintenance of the better margins.

The highlights of Innotek's Q1-2010 results are appended below:

Prior to becoming MD in Jan 2010, Yong Kok Hoon had been CFO of InnoTek since 1999. Photo: annual report

a) revenue rose 12% to S$93.6mn

b) net profit was S$3.49mn compared to a loss of S$0.78mn in Q1-2009

c) EPS was 1.5 cents

d) NTA 87.7 cents

e) issued shares 229.4mn with another six million treasury shares being purchased in Q1-2010

f) gross cash at end of March 31, 2010 was S$97.1mn down from S$109.3mn in Q1-2009. The decline in cash was for the purchase of treasury shares and also to reduce debt.

g) gross debt was S$26.6mn

h) net cash = 30.7 cents

Innotek remains significantly undervalued in terms of PER, net cash PER and dividend yield. It remains as one of my Stock Picks and like Cerebos is an ideal candidate for my new dividend yield portfolio.

More details on whether the Q1-2010 are ahead of my forecasts and my new price target can be found in my Stock Picks section.Investors have just collected the 5 cent final dividend from Innotek for FY2009 which had a cum price of $0.61.

KEVIN'S take on HOCK LIAN SENG, INNOTEK

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