Grand Venture Technology - DBS Research 2022-04-14: A Promising High Growth Venture

GRAND VENTURE TECHNOLOGY LTD (SGX:JLB)

Grand Venture Technology - A Promising High Growth Venture

Riding on positive industry outlook; expansion into front-end semiconductor space a key growth driver.
Armed with higher capacity and new capabilities, well poised to take advantage of this industry growth.
Margins expansion from growing scale and efficiencies.
Initiate coverage on Grand Venture Technology (GVT) with BUY, target price of S$1.50.

Grand Venture Technology (GVT, SGX:JLB) was established in 2012 and is a manufacturing solutions and services provider for the semiconductor, life sciences, electrons, medical, and industrial automation industries.
Its manufacturing plants are located in Singapore, Malaysia, and China with a total factory floor area of 540k sqft. The customer base includes established blue-chip companies in the semiconductor back-end and analytical life sciences industries.

In the semiconductor segment, Grand Venture Technology’s products and services target leading capital equipment manufacturers for semiconductor and electronics manufacturing, and assembly solutions, which then supports industrial and computing, communications, automotive, and consumer industries. Grand Venture Technology’s products and services span across the front-end and back-end.
Grand Venture Technology manufactures and supplies key and high precision components such as cooldown plate bases, hinge brackets, chamber lids, and SFD type pivots for chemical vapour disposition equipment in the front end. For the back-end, Grand Venture Technology manufactures and supplies key and high precision components such as machine bases and assembles complex modules such as linear guides that are used in manufacturing die bonders, wedge bonders equipment, and wire bonders. For back-end testing, Grand Venture Technology manufactures and suppliers key and high precision components such as bridge plate bases and assembles complex modules like zero insertion force assemblies.
Manufacturing the above products requires capabilities such as precision machining, sheet metal manufacturing, vacuum parts manufacturing, and the assembly of complex modules.

In the analytical life sciences segment, Grand Venture Technology manufactures and supplies key components of mass spectrometers. These includes complex parts of the mass filters and ion source as well as vacuum chambers and interfaces. Grand Venture Technology also assembles key modules of ion source for mass spectrometers. The main applications of mass spectrometers are in pharmaceuticals, life sciences, environmental testing, forensic analysis, clinical diagnosis and food and beverage testing.
Grand Venture Technology also manufactures manifolds, valves, and plugs, key components of high-performance liquid chromatography instruments that are used in pharmaceutical applications, food and beverage testing, clinical diagnosis, forensics screening, and environmental testing.
Manufacturing the above products requires sub-micron machining, ultra-high vacuum production processing, class 10,000 cleanroom modular assembly, and vacuum parts manufacturing.

In the electronics, medical, and others segment, Grand Venture Technology is involved in manufacturing consumable parts, the assembly of complex modules for industrial automation and manufacturing, as well as the manufacturing and assembly of surgical microscopes.
Manufacturing the above products requires precision machining, complex sheet metal manufacturing and the assembly of complex modules.

The outlook for the Semiconductor industry, which contributed 71.1% to Grand Venture Technology’s revenue in FY21, remains positive, with revenue CAGR of 39.3% during 2017- 2021.
Grand Venture Technology services top tier customers in the semiconductor back-end space and is targeting to expand to front-end activities, presenting ample room for growth. The Life Sciences segment will also benefit from growing mass spectrometer demand. Furthermore, advancements in medical technologies will be advantageous to the Electronics and Medical segment.

Grand Venture Technology has been in expansion mode in the last two years. Capex spending, acquisition of new facilities and new capabilities will allow Grand Venture Technology to ramp up production, increase wallet share, and acquire new customers, paving the way for stronger growth ahead.

Increased capacity and its growing revenue base enable Grand Venture Technology to reap the benefits from economies of scale. We expect Grand Venture Technology to maintain its FY21 net margin of 15.1% – which jumped from 8.5% in FY20 – going forward, supported by expanding capacity and revenue, and Industry 4.0 initiatives.

Our target price for Grand Venture Technology is based on a P/E peg near its historical peak of 18.0x or +2 standard deviation of its average P/E since listing. We peg this to FY23F earnings to better reflect the group’s expanded capacity and capabilities as the third Penang facility would only be ready by 3Q22 while the completion of the J-Dragon and Formach acquisitions only occurred in 1Q22.
See
Although Grand Venture Technology's share price appears to be trading at a premium compared to its peers, it is undervalued based on a P/E to growth (PEG) basis which takes into account the expected growth rate in EPS. Grand Venture Technology trades at an attractive PEG of 0.4x vs peers of 1.2x (0.80x excluding outlier Micro Mechanics (SGX:5DD)).
Continue to read the 27-page PDF report attached below for complete analysis on Grand Venture Technology (GVT, SGX:JLB).

Lee Keng LING DBS Group Research | Singapore Research Team DBS Research | https://www.dbs.com/insightsdirect/ 2022-04-14

SGX Stock Analyst Report BUY INITIATE BUY 1.50 SAME 1.50