William Tng of CGS-CIMB, in his Sept 26 note, has reiterated his ' reduce' call on Grand Venture Technology JLB 0.88% , given limited visibility of an early recovery to be enjoyed by the electronics manufacturing industry.

 

GVT reiterates that the industry remains affected by geopolitical tensions and weakness in the global economy.

 

" The semiconductor recovery could be gradual and the pace of orders from new front-end customers could be slow in FY2024," says Tng.

 

Nonetheless, GVT is optimistic that there are some signs of easing of excess inventory and expects order momentum to pick up towards the year end and into the coming FY2024, says Tng.

 

In addition, GVT maintains that the mid- and long-term outlook of the semiconductor industry is strong, led by growing investment in AI and its applications.

 

" Hence, GVT continues to grow its capabilities, expand production capacity, and enhance its service offerings to be ready for the next industry uptick," says Tng, adding that the company is making progress to bring on board frontend

semiconductor customers in the metrology, inspection, etch, and wafer deposition segments of the semiconductor industry. 

 

A new plant dedicated for front-end customers is on track to be ready by the end of the year and production equipment has been installed.

 

Meanwhile, GVT sees " stable" orders for its other businesses such as life sciences, medical, electronics, and aerospace.

 

However, Tng prefers to maintain his " reduce" call on the stock, along with a target price of 51 cents. He notes that GVT now trades at 12.5x FY2024 earnings while he values the stock at 11.3x earnings, which is 0.5 standard deviations below its 3-year average given limited visibility of an early recovery. 

Tng warns that possible de-rating catalysts might include a severe drop in customer orders if the world slips into a recession and higher-than-expected spending for long-term growth. 

 

Upside risks, on the other hand, will be potential new customer wins with significant purchase orders and accretive M& As, resulting in better earnings and quicker-than-expected return of customer demand.

MANUFACTURING-service provider Grand Venture Technology : JLB -1.01% posted a 58.3 per cent fall in net profit after tax to S$1.5 million for the first quarter ended Mar 31, 2023, from S$3.6 million the year before.

 

Revenue for Q1 fell 17 per cent to S$26.9 million, from S$32.5 million a year earlier. The decline was mainly due to a contraction in activity in the company&rsquo s semiconductor segment, it said in a business update on Tuesday (May 9).

 

Even so, the decline was partially mitigated by higher revenues from the mainboard-listed company&rsquo s electronics, aerospace, medical and others segment, it added.

 

Revenue from the semiconductor segment fell 37.1 per cent to S$13.7 million in the first quarter, from the S$21.8 million recorded in the preceding year-ago period. This was amid a &ldquo seasonally quiet quarter alongside a general contraction in activity in the back-end semiconductor sector and persistent geopolitical headwinds&rdquo , said the company.

 

Nevertheless, the group is working to onboard new back-end semiconductor customers, and also plans to diversify its revenue to front-end semiconductor, life sciences, medical, aerospace and others.

 

In contrast, revenue from the electronics, aerospace, medical and others segment rose 48.9 per cent to S$8.5 million in Q1, from S$5.7 million a year ago.

 

Meanwhile, the life sciences segment&rsquo s revenue declined slightly by 5.1 per cent to S$4.7 million, from S$4.9 million the previous year, as the group&rsquo s customers became &ldquo more cautious with inventory management amid softer market sentiments&rdquo .

 

While the semiconductor industry is expected to remain muted in the first half of 2023, Grand Venture believes industry momentum will pick up in the later half of the year as excess inventories are digested.

 

Even so, it is mindful that the recovery could be delayed, given prevailing market uncertainties. Thus, the company will continue to &ldquo make good progress in obtaining qualification for parts from its front-end semiconductor customers, while working closely with these customers to pursue a greater degree of involvement in higher-value projects and content&rdquo .

 

The group also plans to reinforce its long-term resilience through diversification, and is taking the time to expand, consolidate and enhance its capabilities.

Manufacturer Grand Venture Technology has reported higher revenue of $131.1 million for FY2022, up 12.8% over the preceding year ended Dec 2021.

 

However, due to one-off costs incurred because of recent acquisitions, as well as unfavourable forex and other costs, earnings for the same FY2022 was $13.3 million, down from $17.6 million reported for the preceding FY2021.

 

At the operating level, GVT was able to largely maintain its Ebitda at $29.9 million for FY2022, versus $31.4 million reported for FY2021.

 

The company plans to pay a final dividend of 0.3 cents per share, bringing full year payout to 0.6 cents.

 

" FY22 began on an optimistic note, but the positive sentiments were gradually eroded by the war in Ukraine, US-China tensions and inflationary concerns," says executive deputy chairman Ricky Lee.

 

" Demand from the back-end semiconductor sector was affected," he adds, referring to the company' s fast-growing segment that faced a slowdown since the middle of 2022.

 

On the other hand, GVT was able to lean on growth from its other business segments ranging from life sciences to electronics, to aerospace and medical industries, which, when combined, help to somewhat offset the " relatively subdued" semiconductor sector.

 

Despite the 12.2% dip in revenue from the semiconductor segment to $72.6 million, GVT maintains its optimism for this industry for the mid to long term.

 

" With the onboarding of new front-end semiconductor business, capacity utilisation improvements are expected to follow in the later part of this year," the company says.

On Dec 9, Grand Venture Technology : JLB +2.04% executive director and CEO Julian Ng Wai Yuen acquired 20,000 shares at an average price of 49.9 Singapore cents per share. Ng maintains a 3.55 per cent direct interest in the company, with his preceding acquisition of 10,000 shares at Singapore 76.5 cents per share on Jun 15. Ng has more than 20 years of experience in the manufacturing and precision engineering industries. On Nov 8, Grand Venture Technology reported that its 9M22 revenue for the semiconductor segment fell 6.5 per cent from 9M21, to S$58.4 million.

 

This was attributed to lower demand for the Group&rsquo s back-end semiconductor services, in tandem with the general industry slowdown, particularly in the memory chips market. As part of its strategy to ensure sustainability of its business with semiconductor customers, the Group relayed it is expanding its value chain participation by offering higher-value front-end semiconductor services. Nonetheless, with the growth in life sciences, electronics, aerospace, medical and other segments, overall Group revenue for 9M22 recorded a 17 per cent improvement from 9M21, to S$100.0 million.

On Nov 30, Grand Venture Technology : JLB 0% (GVT) executive chairman Ricky Lee Tiam Nam acquired 60,000 shares at an average price of 50 cents per share. With a consideration of S$30,000, this increased his direct interest in the innovative precision manufacturer from 15.35 per cent to 15.37 per cent.

 

His preceding acquisitions included 40,000 shares at 50.5 cents per share on Oct 14 and 50,000 shares at 76.8 cents per share between Jun 13 and 15.

 

Lee was one of the founding directors of the company. He is responsible for the overall strategic direction and development of the group. He has decades 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 Nov 8, GVT providing a quarterly business update, said group revenue rose 3.2 per cent to S$32.9 million in Q3 2022, from S$31.9 million in Q3 2021, mainly lifted by a sharp increase in contributions from the electronics, aerospace, medical and others, segments. The increase was partially eroded by a slowdown in business activity in the semiconductor segment, with the manufacturing solutions and service provider maintaining that the near-term demand in the back-end semiconductor segment is expected to remain volatile.

MAINBOARD-LISTED manufacturing-service provider Grand Venture Technology on Tuesday (Nov 8) said its net profit after tax fell 33.4 per cent to S$3.4 million for third quarter ended Sep 30, despite a 3.2 per cent rise in revenue to S$32.9 million.

 

The company&rsquo s gross profit margin decreased from 31.4 per cent to 25.9 per cent amid lower business activity in the back-end semiconductor segment.

 

Grand Venture was also still absorbing the costs of expanding its capacities for future growth during the quarter. Net profit margin fell from 16.2 per cent to 10.5 per cent.

 

The company&rsquo s Q3 revenue was mainly lifted by a sharp increase in the electronics, aerospace, medical and others segment, but dragged down by a general industry slowdown in the semiconductor segment.

 

During the nine months to Sep 30, semiconductor revenue fell 6.5 per cent to S$58.4 million on lower demand for the group&rsquo s back-end semiconductor services.

 

Grand Venture noted a slowdown particularly in the memory chips market.

 

Revenue from the electronics, aerospace, medical and others segment jumped 184.3 per cent to S$27.6 million after robust demand from key customers, and contribution from recent acquisitions including S$6.4 million from the aerospace business.

 

The life sciences segment recorded a 5.6 per cent increase to S$14 million. The group said it expanded its wallet share from customers in the segment.

 

It also secured more orders for the production of mass spectrometers and its bolt-on products, and converted more first article inspections to productions.

 

Grand Venture expects near-term demand in the back-end semiconductor segment to remain volatile. Business activity across its other segments is expected to remain healthy.

 

&ldquo As part of its strategy to ensure sustainability of its business with semiconductor customers, the group is expanding its value chain participation by offering higher-value front-end semiconductor services,&rdquo it said.

CGS-CIMB has downgraded its call on manufacturing solutions company Grand Venture Technology : JLB -9.9% from &ldquo add&rdquo to &ldquo reduce&rdquo , as it expects the firm&rsquo s net profit recovery to be delayed until 2024.

 

The research house slashed its target price for the counter from S$0.85 to S$0.40 to reflect a lower price-to-earnings (P/E) multiple of 9.6 times, as compared to 13 times previously. The new multiple represents half a standard deviation point below the stock&rsquo s historical four-year average as opposed to a half point above previously.

 

In a report on Friday (Oct 14), analysts of CGS-CIMB said the downgrade and lower price target comes amid slowing economic growth and expectations of longer time needed to onboard new front-end customers.

 

This comes as the analysts believe that Grand Venture&rsquo s progress has been slowed by the need for further large capital expenditure - assuming its ongoing diversification strategy is successful, and requires a need for &ldquo firm customer commitment&rdquo to maintain its global competitiveness.

 

&ldquo This would require new capabilities on Grand Venture&rsquo s end and gaining customers&rsquo confidence that Grand Venture can replace their existing suppliers for their Asia-based factories,&rdquo they added.

 

CGS-CIMB has also reduced its revenue forecasts for Grand Venture by 4.2 per cent to 19.1 per cent for FY2022 to FY2024. This has resulted in lower earnings per share (EPS) forecasts for the same period by 8.1 per cent to 35.9 per cent.

 

It does not expect the group to report any EPS growth for FY2023.

 

&ldquo We think the revenue shortfall will not be able to cover Grand Venture&rsquo s expanded cost base arising from its past organic expansion and mergers & acquisitions,&rdquo said the analysts, noting that Grand Venture&rsquo s operating expenses in H1 of FY2022 grew 46 per cent.

Homegrown precision manufacturing solutions provider Grand Venture Technology (GVT) has posted net profit of $7.1 million for the 1HFY2022 ended June, 16.2% down y-o-y.

 

Revenue increased by 25.3% y-o-y to $67.0 million due to higher sales across the group&rsquo s three segments, semiconductor, life sciences and electronics, aerospace, medical and others.

 

Revenue for the semiconductor segment increased on the back of an overall sustained demand for semiconductor chips and additional contribution from the group&rsquo s recent acquisitions.

 

Life sciences also reported revenue growth due to an increased production volume for existing mass spectrometers and its bolt-on products and expanded wallet share from new customers in the segment. The growth was offset by supply-chain-induced constraints by the customers due to Covid-19 restrictions in Shanghai, China.

 

Revenue from the electronics, aerospace, medical and others segment saw a surge following robust demand growth across all key customers in the segment and maiden contribution from the group&rsquo s recent acquisitions, including $3.2 million from the aerospace business.

 

Gross profit increased by 1.9% y-o-y to $18.1 million in line with the revenue increase, although gross profit margin (GPM) fell by 6.2 percentage points to 26.9% mainly due to lower margins recorded in the semiconductor, as well as the electronics, aerospace, medical and others segments.

 

Other income surged by 168.9% y-o-y to $1.7 million mainly due to higher foreign exchange gain of $0.7 million arising from the strengthening of US Dollar against respective functional currencies of each entity. The higher other income was also due to higher amortisation of deferred income amounting to $0.1 million and $0.1 million higher rental and charges to tenants.

 

Other operating expenses also surged by 90.4% y-o-y to $2.3 million due to a $0.3 million increase in depreciation arising from the acquisition of non-production assets, a $0.3 million rise in the amortisation of customer relationships and order backlog in connection with J-Dragon and Formach and a $0.2 million increase in repair, maintenance and other expenses in conjunction with the expanded business volume.

 

Finance costs also rose by 36.3% y-o-y to $1.1 million mainly due to higher costs from the group&rsquo s utilisation of its credit facilities and higher operating lease interest expenses for the group&rsquo s expanded factory floor space.

 

As at June 30, cash and cash equivalents stood at $27.6 million.

 

Earnings per share (EPS) for the period stood at 2.12 cents.

 

The group has declared an interim dividend of 0.3 cents per share, down 0.2 cents y-o-y, payable on Sept 9.

 

In its outlook statement, GVT says it expects to enjoy &ldquo robust demand&rdquo across all its business segments in the ensuing months, even as it is mindful that the headwinds faced by some of its back-end semiconductor customers may cap its growth in the near term.

 

It adds that its recent expansion into the front-end semiconductor business is a &ldquo timely move&rdquo .

 

&ldquo Engagement with prospective customers is progressing well and the onboarding of new customers for this business segment in due course should mitigate the softening demand situation from back-end semiconductor customers,&rdquo says the group in its Aug 10 statement.

 

&ldquo Demand from the life sciences segment should remain resilient given the typically long lifecycles of the customers&rsquo products. Business activity is expected to remain healthy for the medical segment, and the group is tapping on acquisition synergies with J-Dragon to engage new customers,&rdquo it adds.

 

Amid the rising interest rates, GVT says it has locked in a lower, fixed interest rate for the financing of its Singapore facility in early 2022, which should have a positive impact on its borrowing cost.