GRAND VENTURE TECHNOLOGY LTD (SGX:JLB)
Grand Venture Technology - High Growth Continues
- Grand Venture Technology's 1Q22 revenue of $32.5m in line with expectations.
- Net profit margin declined to 11.2% in 1Q22 (vs 14.5% in 1Q21), lower than expected; expect margins to improve beyond 1Q22.
- Inching into the front-end of the semiconductor space, customer acquisitions on the cards.
- Maintain BUY with a lower target price of S$1.40.
GVT's 1Q22 revenue of $32.5m in line with expectations.
- Grand Venture Technology (GVT, SGX:JLB)'s 1Q22 revenue came in at $32.5m (+41% y-o-y, +5.3% q-o-q) with net profit of $3.6m (+8.9% y-o-y, - 6.5% q-o-q). Higher revenues were a result of Grand Venture Technology gaining a greater wallet share from its key customers.
- Net profit margin declined to 11.2% in 1Q22 (vs 14.5% in 1Q21), lower than expected. Margins were impacted mainly by
- higher costs of production,
- lower utilization rates due to capacity increases and
- timing differences in passing on some of the cost increase to customers.
- Grand Venture Technology also incurred S$0.2m of one-off expenses relating to the acquisition of Formach and J-Dragon, and other COVID-19 related costs.
Growth across all three segments.
- Semiconductor segment revenue increased to $21.8m (+34.1% y-o-y) on the back of new customer contributions, higher contribution from key customers, and sustained demand for semiconductor chips.
- Life sciences revenue rose to $4.9m (+29.1% y-o-y) on higher levels of production and larger wallet share.
- Revenue from the electronics, aerospace, medical and others segment grew the most to $5.7m (+93.8% y-o-y) following increased demand from key customers and new contributions from Grand Venture Technology’s recent acquisitions.
Slight shift in segmental revenues.
- The semiconductor segment remains the largest revenue segment, making up 67.2% of total revenue, slightly lower than the 70.6% in 1Q21. This can be attributed to the electronics, aerospace, medical and others segment growing 93.8%, compared to 34.1% growth in the semiconductor segment.
Our Thoughts
Industry outlook still bright.
- The future is rooted in digitalisation and we expect this trend to create a sustained demand for semiconductors. Long term industry growth is still expected to be buoyant, although near-term activity may be hampered by supply chain disruptions.
Higher capacity and new capabilities to propel growth.
- Grand Venture Technology has been expanding rapidly for the past two years and we are of the view that the increased capacity and new capabilities acquired will enable the group to leverage on the industry growth. The integrated manufacturing hub with aggregate floor area of more than 350k sqft is slated for completion by 3Q22, providing capacities for future growth.
Inching into the semiconductor front-end space, a potential catalyst of GVT’s growth.
- According to the 1Q22 business update, Grand Venture Technology is “making good progress in its discussions” with potential customers engaged in the front-end space. The successful entry into the semiconductor front-end space could present considerable opportunities for growth in the semiconductor segment. We continue to keep a close watch on customer acquisitions in the front-end.
Watch out for margins.
- With the Russia-Ukraine crisis, inflation, and rising interest rates, the overall macroeconomic environment may place added pressures on margins. To alleviate some of these pressures, Grand Venture Technology intends to pass on the higher costs to its customers.
- The Industry 4.0 (i4) initiatives are likely to support margins on enhanced efficiency and productivity. Moreover, we expect the growth story to play out, with increasing wallet share and contributions from key customers. This should in turn translate to higher utilization rates, partially offsetting decline in margins.
- Overall, we expect net margins to trend up from 1Q22 results.
Maintain BUY with lower target price of $1.40, from $1.50 previously.
- Revenue forecast for Grand Venture Technology is unchanged but we have revised earnings forecast for Grand Venture Technology downwards by 10.6% and 6.5% in FY22F and FY23F respectively on lower margin assumptions.
- See
- Industry outlook remains compelling, while Grand Venture Technology’s foray into the semiconductor front-end is beginning to take shape. However, we expect near-term margin compression. But this should improve as the group grows in scale and utilization rate improves. Our target price of S$1.40 is based on 18.0x P/E on FY23F earnings.
Lee Keng LING
DBS Group Research
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Singapore Research Team
DBS Research
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https://www.dbs.com/insightsdirect/
2022-05-09
SGX Stock
Analyst Report
1.40
DOWN
1.50
