Grand Venture Technology - CGS-CIMB Research 2021-08-11: Expecting A Stronger 2H21

GRAND VENTURE TECHNOLOGY LTD (SGX:JLB)

Grand Venture Technology - Expecting A Stronger 2H21f

1H21 net profit was slightly better than expected, at 53.2% of our full-year forecast. Grand Venture Technology has guided that 2H21F will be stronger than 1H21.
Reiterate ADD rating for Grand Venture Technology with higher S$1.41 target price, as revenue increase with higher wallet share and more assembly work; margins to improve with economies of scale.

Grand Venture Technology (GVTL, SGX:JLB)'s 1H21F revenue grew 98.9% y-o-y to S$53.5m, while net profit grew 282.7% y-o-y to S$8.5m. This was driven by a 113.7% y-o-y growth in revenue for the semiconductor business, which accounted for 72.6% of 1H21F revenue (1H20:67.6%).
The growth in the semiconductor segment was supported by strong demand for semiconductor chips as the world pushes towards digitilisation, consumer electronics, data, 5G, electric vehicles, artificial intelligence and Internet of things.
Gross profit margin at the group level improved to 33.1% (1H20: 29.8%). In the semiconductor segment, Grand Venture Technology achieved a gross profit margin of 35.3% in 1H21F (1H20: 28.0%) as a result of economies of scale from the higher revenue.
An interim dividend of S$0.005 was declared, and Grand Venture Technology issued a dividend payout target of 20.0% of net profit.
We deem Grand Venture Technology's 1H21F revenue at 48.4% of our full-year forecast to be in line, while 1H21F net profit at 53.2% of our full-year forecast was slightly better than expected.

With demand from its semiconductor and life sciences segments holding strong, Grand Venture Technology has guided that the group will experience an increased level of business activity in 2H21F. The group also aims to expand its current production capacity to meet the needs of its existing customers and potential new customers.
The key risk is the impact on production from government measures to limit the spread of the COVID-19 virus. Management commented that 1H21F revenue was affected by the extended movement control order in Malaysia, which restricted the operations of its Penang plant.

We raise our FY21F-23F revenue forecast for Grand Venture Technology by 1.9% to 4.3%, as Grand Venture Technology takes on more assembly work and increases wallet share with existing customers. As economies of scale increase with higher revenue, we expect gross profit margins to similarly improve, leading to a 12.2%-23.4% increase in our FY21F-23F core EPS forecast.
See
As ROE improves, our new P/BV-derived target price for Grand Venture Technology is S$1.41 (P/BV multiple of 6.95x on FY21F BVPS of S$0.203; previously, we used P/BV multiple of 5.37x).
Key risks are shortfalls in our revenue forecasts due to work stoppages at factories run by Grand Venture Technology or its customers due to measures to contain the COVID-19 pandemic.
Re-rating catalysts are stronger-than-expected results and accretive M&As.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-11

SGX Stock Analyst Report ADD MAINTAIN ADD 1.41 UP 1.120