4Q21 underwhelmed
Favourable LT risk-reward ratio; maintain BUY
4Q21 results were below expectations as supply chain disruptions weighed on its ability to deliver/bill a key customer in the quarter. We have revised down our FY22-24E CNP forecasts by 13-18% and lower our valuation peg to 40x FY23 PER, at +0.5SD to the LT mean (from 42x PER at +1SD) to incorporate potential execution risks in FY22. Imputing for both, our revised TP is MYR6.60 (-22%); with an expected upside of 52% despite more conservative valuation peg, LT risk-reward remains highly favourable.
4Q21 results below expectations
Excluding exceptional items amounting to MYR0.3m, GREATEC’s 4Q21 core net profit came in at MYR28m (-9 YoY, -flat QoQ). With cumulative FY21 core earnings of MYR146.2m (+58% YoY), full-year results did not meet expectations, at just 93%/91% of our/the street’s full year CNP estimates.
Supply chain disruptions weigh on top-line
4Q21 turnover of MYR75.4 contracted 1% YoY/21% QoQ, weighed down by lower PLS contributions from billing deferments (c.MYR20m) as a result of lockdown-induced component shortages/supplier fulfilment lags that affected its key PV customer (accounts for 90% of outstanding O/B). The shortfall in PLS turnover was partially mitigated by an increase in SAE and SP/services revenue, although mgmt expects PLS revenue to normalise in subsequent quarters. Positively, EBIT margins were sequentially higher QoQ (+10ppts) owing to c.MYR9.5m reversal of unused warranty provisions.
Revising estimates but risk-reward still positive
Despite challenging circumstances, GREATEC still grew its bottom-line (exEI) by an impressive 57.8% in FY21. However, we are cautious about recurring supply chain bottlenecks that could dampen its FY22
performance. Hence, we have dialled down our FY22-24E earnings forecast by 17%/18%/13% to account for (i) revised PLS contributions in-line with mgmt’s latest guidance on quarterly run-rates (max. of MYR150m in FY22), (ii) reduced GP margins from increased labour costs as mgmt plans to increase its workforce by c.350 ppl in-line with the expansion in BKIII and (iii) higher eff. tax rates of 7.5%/10% in FY23/24 as its pioneer status is likely to expire in Mar-23. Despite this, GREATEC is still on track to achieve
a 3Y (FY21-24E) CNP CAGR of 18.7%, with enviable exposure to key growth industries (EV/LS/PV) and a high-quality current O/B (MYR547). With its share price declining 37% since early-Jan and GREATEC now trading below its LT mean, we opine that valuations are undemanding – maintain BUY.