M&As could catalyse the share price

  • 9M21 revenue/net profit at 76% of our FY21F forecast were in line with expectations.
  • With Grand Venture’s financial performance having met our expectations, we think M&As (likely by end-Dec 2021F) could be a re-rating catalyst.
  • On rollover to FY22F, our P/BV-derived TP is increased to S$1.69.

9M21 performance in line with our expectations

Grand Venture Technology’s 3Q21 revenue grew 90.9% yoy, driven by the ongoing strong demand from semi-conductor customers. Gross profit margin was lower in 3Q21 at 31.4%, due to Covid-19-related operational and supply chain disruptions. With the higher revenue base and ongoing cost optimisation programmes, net profit margin in 3Q21 improved significantly to 16.2%, from 8.8% in 3Q20 (3Q21 revenue: S$31.9m vs. 3Q20: S$16.7m). Covid-19-related government grants for 9M21 was S$0.2m (vs. S$1.0m in 9M20). While all its business segments experienced yoy revenue growth in 9M21, the semiconductor segment reported the highest yoy growth of 115.1%, accounting for 73.1% of 9M21 revenue (vs. 66.6% in 9M20).

Working on M&As

The group is working expeditiously to deploy the monies raised from the equity placements in Mar 2021 and Sep 2021. Grand Venture has earmarked these funds for: a) acquisition of engineering know-how, competencies, operational capabilities, and market share, and b) organic growth in scaling existing competencies and markets. The group is also continuing its research and development into: i) advanced manufacturing techniques, and ii) advanced materials, such as quartz and ceramics, to enhance the
product and services offerings to existing and prospective customers. Grand Venture will also continue to deploy Industry 4.0 initiatives to future-proof its operations, improve productivity and overcome manpower costs and restrictions. The company had on 27 Oct 2021 obtained the approval in-principle from the Singapore Exchange for the proposed transfer to the main board; the extraordinary general meeting for shareholders to approve this transfer is scheduled for 23 Nov 2021.

Higher TP on rollover to FY22F

We reiterate our Add call and roll over to FY22F, leading to a higher TP of S$1.69, based on 4.49x FY22F BV/share of S$0.376 (previously: 4.56x FY21F BV/share of S$0.309). This translates into an FY23F P/E of 16.10x for Grand Venture, in line with the sector average P/E of 16.10x. Downside risks are operational disruptions (workers being possibly infected by the Covid-19 virus, power restrictions in its China plant, etc). Rerating catalysts are stronger-than-expected results and accretive M&As.