Very much focused on growth
■ We provide an update post Grand Venture Technology Ltd’s recent corporate announcements.
■ In our view, management remains focused on growing the company, both organically and inorganically.
■ Reiterate Add. Our TP remains at S$1.74, based on 15.8x FY23F EPS.
Recent announcements – what we think
● Grand Venture (GV) announced the acquisition of J-Dragon on 17 Dec 2021. We think that this is part of its strategy to develop another revenue stream as J-Dragon serves the aerospace industry. In addition, J-Dragon has customers in the medical space which is also an area of interest for GV. We understand that J-Dragon possesses certain patents in relation to machining competencies to serve the aerospace and medical segments. Also, we believe that J-Dragon is serving an existing back-end customer of GV. Hence, this acquisition could further increase GV’s wallet share with this existing customer.
● We believe that the Formach acquisition (17 Dec 2021) will give GV immediate access to additional production capacity which will allow the company to take on more work (such as more selective assembly services) for customers. Formach’s factory is in Johor, Malaysia.
● GV also announced (5 Jan 2022) that it is acquiring a manufacturing facility (a twostorey, 49,000 sq ft facility occupying a 74,000 sq ft plot of land in Penang) for S$4.4m. With this acquisition, GV will have a manufacturing hub in Penang with an aggregate floor area of more than 350,000 sq ft to serve existing and potential new customers.
● We think GV remains committed to growth and there are plans to work towards securing customers involved in the front end of the semicon industry.
● We understand that GV has also established relationships with more banks, providing additional funding options if suitable M&A opportunities arise. We think that GV will target a debt-to-equity ratio of 1.5x in managing its gearing exposure.
● In the longer-term, we believe GV will work towards providing its own proprietary module solutions to further cement its competitive position with customers and improve margins.
● Reiterate Add. Our TP of S$1.74 is based on 15.8x FY23F EPS (10.0% discount to the sector average).
● Downside risks are operational disruptions (such as workers being possibly infected by Covid-19, power restrictions in its China plant, among others).
● Re-rating catalysts are stronger-than-expected results, potential new customer wins and more accretive M&A.