Awaiting semicon recovery
- GVT’s revenue/net profit likely declined 11.9%/50.9% yoy in 1H23F while revenue/net profit fell 6.9%/43.2% yoy in 2Q23F as demand remains muted.
- Grand Venture Technology Ltd (GVT) could announce its 1H23F results before 10 Aug 2023.
- Reiterate Hold. We lower our TP to S$0.51, based on 10.7x CY24F P/E (0.5 s.d. below its 3-year average; vs. 10.4x previously).
FY23-25F forecasts reduced
Industry forecasters Gartner and World Semiconductor Trade Statistics (WSTS) expect global semiconductor sales to decline 11.2% (Apr 2023) and 10.3% (May 2023) in 2023F, respectively. Gartner/WSTS expect global semicon sales to rise 18.5%/11.8% yoy in 2024F. We lower our FY23-25F forecasts ahead of GVT’s expected 1H23F results release before 10 Aug 2023. We reduce FY23-25F revenue by 2.7-4.4% given weak business sentiment arising from geopolitical and trade conflicts, intensifying risks of a recession globally and inflation concerns. This lowers our FY23-25F net profit forecasts by 8.3-12.6%. We also pare down FY23F gross profit margin estimate by 0.7% pt due to ongoing first article costs for potential new customers. Potential front-end semicon customers that GVT is trying to develop continue to adopt a cautious stance on placing new orders , according to GVT. In its back end semicon segment, key customer BE Semiconductor Industries N.V. expects volume orders for its hybrid bonders to pick up over 2024-26F (Capital Markets Day presentation on 6 Jun 2023) while key customer Teradyne expects its business to see a slight improvement hoh in 2H23F (1Q23 results presentation).
Higher revenue potential in front-end semiconductor business
In its 27 Apr 2023 AGM presentation, GVT updated that it had acquired new customers across metrology, inspection, etch and wafer deposition in the semicon production chain. GVT also highlighted that as at end-2022, the front-end semicon market size by revenue was US$94.8bn versus US$13.7bn for the back end; this led to its decision to invest and penetrate the front-end semicon business. Construction of a dedicated factory for front-end customers has been completed and the first flexible manufacturing line is targeted to be installed by 2H23F, according to GVT.
Reiterate Hold with a lower TP of S$0.51
We lower our TP to S$0.51 due to the 9.3% reduction in our FY24F EPS forecast. We have used a 10.7x CY24F P/E (0.5 s.d. below its 3-year average; this was 10.4x previously). We reiterate our Hold call pending signs that GVT’s front-end customers are ready to award high volume orders to GVT. Downside risks include a severe drop in customer orders if the world slips into a recession, and higher-than-expected spending for long-term growth. Upside risks are potential new customer wins with significant purchase orders, and accretive M&As which could raise GVT’s revenue over FY23-24F, resulting in higher net profit.
Awaiting semicon recovery
Adding management strength to address front-end opportunities
On 26 Jun 2023, GVT announced that it was strengthening its leadership and engineering technology bench strength with the appointment of Mr. Leong Kwok Choon as its Senior Director, Key Technology, from 3 Jul 2023. GVT sees this addition as a strategic move to bolster its next phase of growth and Mr. Leong has been tasked to spearhead GVT’s adoption of next-generation technology to enhance its precision manufacturing capabilities and accelerate the group’s expansion within the front-end semiconductor segment. He will also be responsible for nurturing and growing the engineering team at GVT. Mr. Leong is an industry veteran of over 30 years in the precision engineering sector and has previously held senior leadership positions at Frencken Group Limited (Hold, TP S$0.87, CP:S$0.88), Norelco Centreline Holding Ltd, Flextronics (now known as Flex; NR). He has extensive experience and expertise in engineering, industrial technology, and manufacturing operations, with experience in Industry 4.0 and automation.
1H23F net profit likely fell 50.9% yoy
In FY22, GVT reported its 1H22 results on 10 Aug 2022 with 1H22 revenue growing 25.3% yoy to S$67.1m while net profit fell 16.2% yoy to S$7.1m. Revenue grew 13.4% yoy to S$30.5m in 2Q22 while net profit fell 32.3% yoy to S$5.2m in 2Q22. In its 1Q23 business update on 9 May 2023, GVT guided that sentiment in the semiconductor industry remained muted in 1H23 but the group expects industry momentum to pick up in 2H23F as excess inventories are digested. Hence, we think that GVT’s 2H23F performance could potentially be stronger than 1H23F’s.
We estimate revenue fell 11.9% yoy and 7.7% hoh to S$59.1m in 1H23F while net profit fell 50.9% yoy and 43.5% hoh to S$3.5m in 1H23F due to muted customer demand. We estimate revenue declined 6.9% yoy but improved 19.7% qoq to S$32.2m in 2Q23F while net profit fell 43.2% yoy but improved 31.6% qoq to S$2.0m in 2Q23F as second quarter has historically been a better quarter.