Between Jun 13 and 15, Grand Venture Technology (GVT) : JLB -1.94% executive chairman Ricky Lee Tiam Nam acquired 50,000 shares of the company at an average price of 76.8 cents per share. With a consideration of S$38,375, this increased his direct interest in the innovative precision manufacturer from 15.33 per cent to 15.34 per cent. 

 

Responsible for the overall strategic direction and development of the group, Lee was one of the founding directors of the company.

 

He has over 38 years of experience in the manufacturing, assembly/servicing and precision engineering industries, beginning his career in 1982 as a machinist in Pan-World Precision Engineering.

 

On Jun 15, GVT executive director and CEO Julian Ng Wai Yuen also acquired 10,000 shares at an average price of 76.5 cents per share. This increased his direct interest in the company from 3.54 per cent to 3.55 per cent. Ng has more than 20 years of experience in the manufacturing and precision engineering industries

 

In early May, GVT reported 19.5 per cent year-on-year growth in Ebitda and 8.9 per cent growth in net profit after tax for Q1 FY2022 (ended Mar 31), on the back of a 41.0 per cent revenue increase from S$23.0 million in Q1 FY2021 to S$32.5 million in Q1 FY2022.

 

Lee noted with the results that robust demand from the semiconductor industry saw GVT make good progress in its discussions with potential customers engaged in the manufacture of metrology and inspection, etching, and wafer deposition equipment. Lee added that when fully onboarded, these customers are expected to be the key drivers for the front-end semiconductor activities of GVT in the near future. In Q1 FY2022, the semiconductor sector contributed 67.2 per cent to the group&rsquo s total revenue, comparable with the 71.1 per cent contribution in FY21 and 68.7 per cent contribution in 2020.

 

GRAND Venture Technology : JLB +4.66% (GVT) is likely " well-poised" to gain from the positive industry outlook on all 3 of its segments, which includes the semiconductor, life sciences, and electronics and medical segments, said DBS Group Research.

 

The research team on Thursday (Apr 14) initiated coverage on the precision manufacturing company with a " buy" call and target price of S$1.50, as it assumes revenue will grow by 25 per cent in FY2022 and 22.5 per cent in FY2023.

 

The target price, pegged to 18 times the brokerage' s estimates for FY2023 earnings, is likely " justified" amid GVT' s ability to benefit from industry growth.

 

DBS said while GVT appears to be trading at a premium compared to its peers, it is undervalued when taking into account the expected growth rate of its earnings per share.

 

Shares of GVT were trading at S$1.01 at 1.40 pm on Thursday, up S$0.045 or 4.7 per cent.

 

GVT' s semiconductor segment, which is its largest contributor to revenue, will likely benefit from the global push towards digitalisation, with areas such as 5G, autonomous vehicles and artificial intelligence supporting the semiconductor industry.

 

GVT currently services 4 of the top semiconductor players in the back-end space and is planning to expand its products offerings for front-end players, the research team noted.

 

Its life sciences segment should also gain from an increase in research and development in the pharmaceutical industry, while demand for the mass spectrometer component is likely supported by the food safety testing market.

 

As for its electronics, medical and others segment, an increase in minimally invasive surgeries should boost surgical microscope demand.

 

DBS noted that GVT has been expanding in the last 2 years, and the acquisition of new facilities and new capabilities should allow GVT to ramp up production and drive future growth.

 

The possibility of future acquisitions especially in advanced materials such as quartz, ceramics and engineering plastics may also strengthen the competitive positioning of GVT, the research team said.

 

Going forward, DBS expects GVT to maintain its FY2021 net margin of 15.1 per cent, which jumped from 8.5 per cent in FY2020, supported by expanding capacity and revenue.

 

GVT posted net profit of S$17.6 million for its financial year 2021, from S$5.2 million a year ago. Previously listed on the Catalist board of the Singapore Exchange, it transferred to the mainboard in November 2021.

DBS initiate coverage today 
A promising high growth venture

• Riding on positive industry outlook expansion into front-end semiconductor space a key growth driver 
• Armed with higher capacity and new capabilities, well poised to take advantage of this industry growth 
• Margins expansion from growing scale and efficiencies
• Initiate coverage with BUY, TP of S$1.50

Riding on positive industry outlook for all three segments expansion into front-end semiconductor space a key growth driver. The outlook for the Semiconductor industry, which contributed 71.1% to Grand Venture&rsquo s (GVT) revenue in FY21, remains positive, with revenue CAGR of 39.3% during 2017-2021. GVT services top tier customers in the semiconductor back-end space and is targeting to expand to front-end activities, presenting ample room for growth. The Life Sciences segment will also benefit from growing mass spectrometer demand. Furthermore, advancements in medical technologies will be advantageous to the Electronics and Medical segment.

Well poised to take advantage of industry growth with higher capacity and new capabilities. GVT has been in expansion mode in the last two years. Capex spending, acquisition of new facilities and new capabilities will allow GVT to ramp up production, increase wallet share, and acquire new customers, paving the way for stronger growth ahead.

Margin expansion from growing scale and efficiencies. Increased capacity and its growing revenue base enable GVT to reap the benefits from economies of scale. We expect GVT to maintain its FY21 net margin of 15.1% &ndash which jumped from 8.5% in FY20 &ndash going forward, supported by expanding capacity and revenue, and Industry 4.0 initiatives. 

Valuation:

Initiate coverage with BUY TP of $1.50. Our target price is based on 18.0x FY23F earnings, a PE peg close to its historical peak, given robust growth trajectory. It is currently trading at FY23F PEG of ~0.4x, which is attractive vs 1.2x for peers.

Key Risks to Our View:

Prolonged supply chain disruptions pandemic related lockdowns rising raw material prices, volatile end market demand.

 

FY21 results were ahead of our estimates of revenue (+17%) and net profit. (+21%) due mainly to higher sales across all 3 segments. (Semiconductor: +96%, Life sciences: +53%, Electronics, medical and others: +110%)

 

Production capacity is no longer a limiting factor. Its 2nd factory bought in March 21 has been completed and contributes an additional ~20% capacity. With the extra capacity, management hopes to bring back orders that were previously contracted out, hence, improving margin.

 

Development in front end capabilities is key catalyst to GVT&rsquo s growth. GVT is in talk with new customers from the front end. We expect to only see significant progress FY23-24 onwards as onboarding including qualification process and ramp up takes time. Investment in machineries and equipment comes after obtaining commitments from customers. GVT is expected to take on more debt to fund its expansion. We increase our cost of debt to 5.3%.

 

Smaller delivery of its semiconductor components in 1H22. One of GVT&rsquo s main customer, Teradyne, has guided a lower 1H22 forecast with a 15-20% drop in sales due to a slower transition to 3nm technology. Catch up in shipment is likely to be at the end of FY22 or start FY23.

 

Revise to BUY at lower TP of S$1.195 on higher cost of debt and market risk (WACC: 8.70%). We revise our FY22E topline and bottomline estimates up by 23% and 36% and introduced our FY23 numbers.

 

On Feb 4, Grand Venture Technology Grand Venture: JLB +0.92% substantial shareholder Sunshine Ventures Pte Ltd increased its interest in the company to above the 9.00 per cent substantial shareholder threshold.

 

Sunshine Ventures Pte Ltd acquired 365,000 shares of the company at an average price of S$1.00 per share.

 

With a consideration of S$366,299, Sunshine Ventures increased its direct interest in Grand Venture Technology from 8.96 per cent to 9.07 per cent.

 

On Jan 5, the homegrown precision manufacturing solutions provider announced that it would create an integrated manufacturing hub in Malaysia following its latest acquisition of a manufacturing facility in Penang for S$4.4 million.

 

This marked its third facility acquisition in Malaysia in 2 years as it gears up to meet the anticipated growth in demand for its services from the semiconductor industry.

 

The company raised S$51 million through private placements in 2021, in addition to transferring from the Catalist Board to the Mainboard.

 

On Nov 3, it reported 270 per cent growth in net profit after tax for its 9MFY21 (ended Sep 30), with the company generating a 260 per cent share price gain in 2021. Based on previous years' reporting, the company is expected to report its FY21 results by next week.