Grand Venture Technology Ltd - CGS-CIMB Research 2020-08-11: Revenue Growth Offsets Margin Pressure

GRAND VENTURE TECHNOLOGY LTD (SGX:JLB)

Grand Venture Technology Ltd - Revenue Growth Offsets Margin Pressure

Grand Venture Technology's 1HFY20 revenue and net profit were both above expectations, at 65% of our full-year forecasts.
Although gross profit margin fell to 29.8% in 1H20 vs. 39.2% in 1H19, y-o-y revenue growth of 48.9% helped gross profit improve 13.3% y-o-y in 1H20.
Reiterate ADD.
Re-rating catalyst is normalisation of gross profit margin as supply chain disruptions are resolved post COVID-19.

Grand Venture Technology (SGX:JLB)'s 1H20 revenue grew 48.9% y-o-y to S$26.9m, while net profit grew 46.2% y-o-y to S$2.2m. At 65% of our full-year forecasts, both revenue and net profit were above our expectations.
Due to the disruptions to the supply chain from the COVID-19 pandemic, gross profit margin in 1H20 fell to 29.8% versus 39.2% in 1H19. Gross profit margin in the semiconductor segment was 28.0% in 1H20 versus 39.4% in 1H19, while in the life sciences, electronics and others segment, the gross profit margin in 1H20 was 33.7% versus 39.0% in 1H19.
The semiconductor segment accounted for a higher 67.6% of 1H20 revenue (1H19: 53.8%), while the life sciences, electronics and others segment accounted for a lower 32.4% of 1H20 revenue (1H19: 46.2%).
No interim dividend was declared. See Grand Venture Dividend History.
As at end-Jun 2020, the net gearing position was 0.82x.

Grand Venture Technology has not experienced any push-back or order cancellation of order due to the COVID-19 outbreak. However, given the ongoing pandemic and the US-China trade war, the group said it will monitor its strategy and cash flow carefully.
In Jun 2020, Grand Venture Technology obtained certification for ISO 13485:2016, an internationally certified quality management system specific to the medical devices industry, to cater to growing customer demand in this sector.

We reiterate our ADD call on Grand Venture Technology with a higher Target Price of S$0.36 (previously S$0.262) as we raise our revenue forecasts with the normalisation of the supply chain. Our FY20-22F EPS are raised by 25.7-42.0%. Our target price is based on a 2.35x FY20F P/BV multiple (previously 1.76x), derived from the Gordon Growth Model (COE: 7.7%; ROE: 15.5%).
See Grand Venture Share Price; Grand Venture Target Price; Grand Venture Analyst Reports; Grand Venture Dividend History; Grand Venture Announcements; Grand Venture Latest News.
Downside risks include deterioration in customer demand due to escalation of the COVID-19 outbreak.
Re-rating catalysts include normalisation of profit margin as supply chain disruptions are resolved.

William TNG CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-11

SGX Stock Analyst Report ADD MAINTAIN ADD 0.36 UP 0.262