Grand Banks Yachts Ltd - CIMB Research 2017-11-29: Charting A New Course

Grand Banks Yachts Ltd - CIMB Research 2017-11-29: Charting A New Course GRAND BANKS YACHTS LIMITED G50.SI

Grand Banks Yachts Ltd - Charting A New Course

  • Grand Banks Yachts manufactures yachts ranging from 42-65 feet (under the Grand Banks and Palm Beach brands) at its yards in Malaysia and Australia.
  • Its end-Sep 2017 order book of S$38.6m was the highest in eight years, lifted by eight new boat orders received in 1QFY6/17.
  • The company’s biggest market is the US, which contributed 68.7% of FY17 revenue, followed by Australia (31.3%).
  • Grand Banks now trades at 1.28x FY17 P/BV (with FY16-17 ROE of 1-4%), above its historical 5-year average of 0.96x.



Enhanced manufacturing yard could boost productivity 

  • We visited Grand Banks’s manufacturing facility in Pasir Gudang, Johor, Malaysia on 23 Nov. The 380,000 sq ft yard has undergone operational enhancements since Aug 2014 (FY6/15) when CEO Mark Richards took over the helm. 
  • Management expects the enhancements at the yard to lift productivity and expand production capacity.


Cash conversion cycle has improved since new leadership 

  • Its cash conversion cycle has improved from 184 days in FY14 to 19 days in FY17, due to streamlined processes and shorter production cycles at its yards, according to the company. 
  • Free cash flow, however, was negative S$0.1m in FY17 (FY16: -S$0.7m), dragged by above-average capex incurred for the installation of a test pool and relocation of yacht fibreglass hull mould production to in-house manufacturing at the Pasir Gudang factory.


End-Sep 2017 order book of S$38.6m – highest in eight years 

  • Net order book stood at S$38.6m as at 30 Sep (30 Jun: S$36.8m) after the group secured eight new boat orders, including an order for its newest GB60 yacht model, as per the latest 1QFY18 results announcement. 
  • The company stated around 20 boats were sold in FY17.


Key markets are the US and Australia 

  • The US market (68.7% of S$59m FY17 revenue) remains the largest contributor to company revenue, followed by Australia (31.3%). Given the factory-direct sales model adopted since its operational revamp, Grand Banks now has full-time in-house sales teams stationed in the US and Australia. 
  • The group also regularly participates in boat shows held annually, which it believes are vital sales and advertising activities for its new models.


Competitive landscape poses challenge 

  • The luxury yacht market is a competitive space with more than 50 well-known brands worldwide. Established brands in the motor yacht category that Grand Banks competes with include Sea Ray [under Brunswick Corporation (BC US, Not Rated)], Sunseeker [backed by Dalian Wanda group (Unlisted)] and Princess Yachts [LVMH group (MC FP, Not Rated)].


Opportunities 

  • Management expects its fully-redeveloped Pasir Gudang yard, which now features automation, streamlined operations and 20% more usable covered space, to lift production capacity and efficiency, resulting in yachts of better quality. 
  • The group plans to extend its sales network beyond the US and re-enter the European market with an expanded product line.


Core FY17 P/BV of 1.32x; no longer making losses 

  • Grand Banks currently trades at 1.28x FY17 P/BV, above its historical 5-year average of 0.96x against FY16-17 ROE of 1-4%.


NOT RATED
Target Price: N/A




William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-11-29
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998



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