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 with BUY, TP of S$1.50
Riding on positive industry outlook for all three segments; expansion into front-end semiconductor space a key growth driver. The outlook for the Semiconductor industry, which contributed 71.1% to Grand Venture’s (GVT) revenue in FY21, remains positive, with revenue CAGR of 39.3% during 2017-2021. GVT 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.
Well poised to take advantage of industry growth with higher capacity and new capabilities. GVT has been in expansion mode in the last two years. Capex spending, acquisition of new facilities and new capabilities will allow GVT to ramp up production, increase wallet share, and acquire new customers, paving the way for stronger growth ahead.
Margin expansion from growing scale and efficiencies. Increased capacity and its growing revenue base enable GVT to reap the benefits from economies of scale. We expect GVT 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.
Valuation:
Initiate coverage with BUY; TP of $1.50. Our target price is based on 18.0x FY23F earnings, a PE peg close to its historical peak, given robust growth trajectory. It is currently trading at FY23F PEG of ~0.4x, which is attractive vs 1.2x for peers.
Key Risks to Our View:
Prolonged supply chain disruptions; pandemic related lockdowns; rising raw material prices, volatile end market demand.