Onboarding new customers key to re-rating
- 1H22 revenue was in line with our estimate but 1H22 net profit was 21% below. 1H22 revenue increased 25.3% yoy driven by all business segments.
- Cost pressures and product mix changes saw pre-tax margin eroding from 19.7% in 1H21 to 12.5% in 1H22.
- We lower our FY22-24F EPS estimates to reflect further clarity on margin pressure trend. Our TP is reduced to S$0.85 (previously: S$1.29).
1H22 results: net profit was 21% below our S$9.0m expectation
1H22 revenue rose 25.3% yoy to S$67.1m with all business segments registering yoy growth. Revenue rose 13.4% yoy to S$34.6m in 2Q22. 1H22 revenue was in line with our expectation. 1H22 net profit fell 16.2% yoy while 2Q22 net profit slumped 32.3% yoy. 1H22 core net profit of S$7.1m was 21% below our S$9.0m expectation, forming 32% of our full-year forecast. Gross profit margin (GPM) narrowed from 33.8% in 2Q21 to 25.5% in 2Q22. 1H22 GPM was 26.9% vs. 33.1% in 1H21. Net profit margin (NPM) was 10.1% in 2Q22 vs. 17.0% in 2Q21 and 11.2% in 1Q22. 1H22 NPM was 10.6% vs. 15.9% in 1H21. Interim DPS was cut to 0.3 Scts from 0.5 Scts in 1H21.
2H22 outlook: management sees robust demand
Although management sees robust demand across all its business segments in 2H22F, it is mindful that the headwinds faced by some of its back-end semiconductor customers may cap the group’s growth in the near term. Hence, the group seeks to mitigate this with its expansion into the front-end semiconductor business. GVT updated that engagement with prospective customers is progressing well and guided that the onboarding of these new customers is expected to mitigate the softening demand situation from back-end semiconductor customers. In the Life Sciences segment, GVT expects demand to remain resilient given the typically long lifecycles of the customers’ products. GVT is also addressing the rising cost environment via further automation and passing on some of the cost increases to customers.
Reiterate Add on growth potential
We cut our FY22-24F EPS by 31.4-34.7% as GVT navigates the difficult operating environment. This leads to a lower TP of S$0.85 based on 13.0x (+0.5 s.d. above the average forward P/E multiple for Dec 19 to Aug 22; previously we used a 13.1x P/E multiple) on our FY23F EPS forecast. We use +0.5 s.d. above the average forward P/E multiple to price in the probability of potential FY23F earnings contribution from new customer wins in the front-end semicon space by GVT. Re-rating catalysts are stronger-than-expected results, potential new customer wins and accretive M&A. Downside risks are operational disruptions from Covid-19 lockdowns in China and higher than expected spending for long-term growth affecting our FY23-24F net profit expectations.