High growth continues
- 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 TP of S$1.40
Investment Thesis
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. The successful entry into the semiconductor front-end space could open considerable growth opportunities in the semiconductor segment
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.
Margins expected to improve after 1Q22. The overall macroeconomic environment may place pressure on margins, but we expect margins to improve on the back of absorption of spare capacities and i4 initiatives.
Valuation:
Maintain BUY; TP revised to $1.40, from $1.50 previously. Our target price is based on 18.0x FY23F earnings, which is close to its historical peak, given robust growth trajectory.
Where we differ:
We adopt a more cautious stance on margins given the uncertain macroeconomic outlook owing to the Russia-Ukraine conflict and supply chain disruptions.
Key risks to our view:
Prolonged supply chain disruptions; pandemic related lockdowns; rising raw material prices, volatile end market demand.