10 Questions for InnoTek Limited

1.  What are some of the latest updates from InnoTek with reference to its financial performance? 
 

• In the first half of 2024, InnoTek achieved a 30.9% increase in revenue, reaching S$121.6 million, up from S$92.9 million the previous year. Correspondingly, gross profit for 1H24 rose by 13.0% to S$17.7 million, compared to S$15.7 million a year ago. 
• This improved performance was primarily driven by the success of our new GPU server projects, along with contributions from the Automotive and TV/Display segments, although it was partially offset by weaker sales in the Office Automation (OA) segment.
• Net profit for 1H24 remained steady at S$3.1 million, unchanged from the previous year, which includes a S$3.2 million provision for inventory obsolescence. Excluding this provision, net profit would have been S$6.3 million. We continue to maintain a strong balance sheet, with a net cash position of S$55.9 million as at 30 June 2024.

2.  What drives InnoTek’s revenue growth?
 

• InnoTek has four business divisions – Automotive, Office Automation, TV/Display, and New Businesses such as GPU servers used for artificial intelligence (AI), gaming machines, medical equipment and ATMs.
• Our GPU Server projects experienced the highest growth rate, driven by a surge in demand from our key customer amid the rapid adoption of AI.
• Higher revenue in the first half of 2024 was driven by increased contributions from our Automotive segment, as demand for Electric Vehicles (EVs) in China continued to strengthen, alongside improved overseas sales.
• Despite a soft European and American market, our TV/Display segment performed better, thanks to new product launches from our key customers and seasonal trends.

3.  What are some new product lines that InnoTek has diversified into, and why?
 

• In the past two years, InnoTek has diversified its customer base into technologically advanced sectors such as GPU servers, gaming machines, medical equipment, and ATMs. Our focus on the server segment has paid off, with this segment now accounting for 20% of our total revenue in the first half of 2024.
• Within our Automotive sector, we are also working to secure more EV-related projects. Besides traditional car parts such as door locks, chair seats and safety systems, InnoTek is also able to manufacture battery packs and EV charging stations. 
• China has seen a significant shift from traditional petrol cars towards EVs, and we expect this trend to accelerate globally. In response, the Group has also adapted our capabilities to capitalise on this shift.
   

4.  Are there initiatives to help the Group improve efficiency and product quality?
 

• In response to our shifting customer base, InnoTek is installing new machinery at our facilities in China. These include a 3,000-ton hydraulic press and additional larger-tonnage stamping presses to manufacture EV battery packs and new automotive orders. 
• We have also added die-casting equipment, which will allow us to produce a wider range of GPU server-related products. 
• To further increase operational efficiency and automation, we have implemented advanced technologies such as intra-mould transfer stamping, which transfers the metal part from one station to another. This allows us to integrate various stamping operations with minimal human intervention and will reduce the time required to produce each part while ensuring a high level of accuracy and precision.

5.  Post the pandemic, China has seen an outflow of manufacturing activities. How is InnoTek navigating this?
 

• While companies had been adopting a “China + 1” manufacturing strategy over the past few years, the outflow has accelerated due to US-China trade tensions. Following the pandemic companies sought to diversify their supply chains to minimise future disruptions. 
• In response, InnoTek has taken a deliberate approach to expand our footprint beyond China. In April 2017, we incorporated our first production plant in Southeast Asia, Mansfield (Thailand) Co., Ltd in Rayong, Thailand. 
• Since then, we established our wholly-owned subsidiary, Mansfield Vietnam Company Limited, located in Bac Ninh Province, Vietnam, in August 2021. In February 2023, we also acquired a 70%-stake in a joint venture in Bac Giang Province, Vietnam. 
• These efforts have helped us become a more diversified group, and we are able to offer customers flexible solutions to navigate geopolitical tensions and meet their requirements to diversify their manufacturing footprint.
   

6.  What are InnoTek’s focused markets and are there plans to expand further?
 

• Traditionally, InnoTek has concentrated on the Automotive, OA, and TV/Display business segments. However, we have been actively expanding our customer base into emerging industries like GPU servers, gaming machines, medical equipment, and ATMs.
• Geographically, we have also extended our footprint into Southeast Asia. Moving forward, InnoTek is seeking opportunities to further increase our presence in the region.
   

7.  Given the shift towards electric vehicles, how does InnoTek plan to capture opportunities in this industry?
 

• We have a solid track record in the EV sector spanning several years, and entered the EV battery market in 2021 with a steel stamping project for a leading EV battery producer. In 2024, we further expanded our production to include EV charging stations. 
• Looking ahead, we aim to become a strategic supplier to the EV sector. To achieve this, we are leveraging our extensive expertise in automobile products, attracting skilled technicians, and installing new machinery to better serve the industry.

8.  How does InnoTek plan to navigate the persistently weak demand in the office automation segment of its business?
 

• The softer demand in the OA segment is largely driven by companies accelerating their China + 1 strategy, shifting their manufacturing footprint from China to Southeast Asia. 
• In response, we are actively engaging with key customers who are diversifying their operations out of China. At the same time, we are collaborating closely with customers within China to secure new projects by integrating our value chain and offering value-added services, ensuring we remain a core supplier to our existing customers.
   

9.  What are some Environmental, Social, and Governance (ESG) factors that are material to the Group?
 

• InnoTek recognises the importance of ESG factors in driving long-term value for our shareholders and has been integrating these values into our core business operations.
• These includes implementing energy-efficient technologies such as advanced air compressors and installing solar photovoltaic power generation equipment to enhance sustainability.
• We will also prioritise the use of sustainable and recycled metals in our production processes to reduce our carbon footprint, minimise waste, and lower operational costs. Additionally, we are investing in a new anodising line to improve sustainability by reducing power and water consumption.
• On the Social front, our workers’ welfare is a key priority. We have been providing comprehensive training and investing in advanced safety equipment. InnoTek upholds a high standard of transparency and corporate governance, organizing regular shareholder and investor briefings and giving timely updates to the market. 

10. Why should investors take a closer look at InnoTek?
 

• InnoTek has been consistently profitable over the past 8 years, with a steady distribution of dividends since 2016. 
• With a robust balance sheet and a strong net cash position, we believe InnoTek’s diversification efforts position us well to capitalise on long-term growth trends such as the transition from petrol cars to EVs, as well as the surge in demand for GPU servers arising from the strong adoption of AI. 

10 in 10 – 10 Questions in 10 Minutes with SGX-listed companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials.

This report contains factual commentary from the company’s management and is based on publicly announced information from the company.

For more, visit sgx.com/research.

For more company information, visit www.innotek.com.sg

Click here for InnoTek’s 1H24 results release.