Grand Venture Technology - CGS-CIMB Research 2021-02-23: Gearing Up For Growth

GRAND VENTURE TECHNOLOGY LTD (SGX:JLB)

Grand Venture Technology - Gearing Up For Growth

Grand Venture Technology's FY20 revenue/net profit was 12%/22% above our forecast, driven by strong y-o-y revenue growth in the semiconductor and life science segments.
Grand Venture Technology expects the growth momentum in its life sciences and medical segments to continue into FY21F.
Reiterate ADD with a higher S$0.605 target price as more customer wins drive higher profitability.

Grand Venture Technology (SGX:JLB)’s FY20 revenue was 12% above our expectations. The semiconductor segment saw y-o-y revenue growth of 77% versus a 22% decline in FY19. The life sciences, electronics and others segments saw 18% y-o-y revenue growth. See Grand Venture's announcements.
The semiconductor segment accounted for 69% of Grand Venture Technology's FY20 revenue while the life sciences, electronics and others segments accounted for the remaining 31%.
Overall gross profit margin fell to 30.8% in FY20 versus 37.2% in FY19 as COVID-19 affected production at Grand Venture Technology’s plants in Malaysia and China. Despite this, FY20 net profit came in 22% above our forecast.
In FY20, Grand Venture Technology suffered exchange losses of S$0.5m and received COVID-19 related grants/rebates amounting to S$0.6m.

On 12 Jan 2021, Grand Venture Technology entered into a conditional placement agreement with NT SPV 12, a wholly-owned subsidiary of private equity fund, Novo Tellus P/E Fund 2, to raise net proceeds of approximately S$23.5m (71.5m new shares at a placement price of S$0.33). S$19m of the proceeds have been earmarked for M&A.
We think Grand Venture Technology will continue to invest in its capabilities and production capacity over FY21-22F in anticipation of strong demand from its semicon and life sciences, medical equipment customers.

We reiterate our ADD call on Grand Venture Technology with a higher target price of S$0.605 (previously S$0.36) as we raise our FY21-22F EPS forecast by 4.6-14.1%. FY23F forecasts are also introduced in this note.
We have also assumed that Grand Venture Technology's proposed new share placement mentioned above will be approved by shareholders at the extraordinary general meeting on 1 Mar 2021.
Our target price is based on a 3.31x FY21F P/BV multiple (previously 2.35x), derived from the Gordon Growth Model (COE: 7.5%; ROE: 18.9%).
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 are new customer wins and commencement of mass production for customers’ products in FY21-22F.

William TNG CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-23

SGX Stock Analyst Report ADD MAINTAIN ADD 0.605 UP 0.360