INNOTEK (Lim&Tan)

S$0.335-INNT.SI

􀁺 Yesterday Innotek bought back 210,000 shares from the open market around the 34 cents level, accounting for a significant 94% of the day’s trading volume.

􀁺 This brings their cumulative buy back to 19,725,000 shares representing 86.88% of their current maximum allowable buy back mandate.

􀁺 Since the company started their buy back program in late 2007 till present, their buy back track record has been mix. From late 2007 till late 2008, the company’s buy back program did not benefit the share price as it fell consistently over that period from close to $1 to below 20 cents in late 2008 to early 2009. This we believe was due to its bottomline turning from 2007’s profit of $22mln to a loss of $6mln in 2008 as well as coinciding with the global financial crisis.

􀁺 Their second buy back program done during early 2010 till late 2010 did benefit the share price, having risen from the mid 30 cents level to about 65 cents in earl 2011. This was however accompanied by the company’s robust bottom-line performance in 2009, turning around from 2008’s loss of $6mln to a profit of $10mln and bottom-line more than doubled in 2010 to $21mln.

􀁺 The latest share buy back is coming at a time when the company’s 1H 2011 bottom-line crashed 91% yoy to $790,000, impacted by the supply chain disruption in Japan, weak US$ and higher operating costs.

􀁺 While management said that the passing of the Japanese disaster will see 2H 2011 perform better, continued challenges such as weak demand conditions in US and Europe, continued high operating costs in China and continued weak demand for higher margined products mean that it would unlikely show a strong recovery yet.

􀁺 While the stock has already fallen close to 50% from its May 2011 high and could see some support from the company’s share buy backs, we are only upgrading to Neutral pending a stronger traction on its bottom-line recovery.