CGS-CIMB Research analyst William Tng has upgraded Grand Venture Technology JLB to “add” from “reduce” previously with a higher target price of 62 cents from 51 cents before.
The upgrade comes as Tng believes that the company will see its earnings improve over FY2024 to FY2025 as the semiconductor industry “stages a recovery”.
The analyst estimates the company’s FY2024 revenue to grow by 31.1% y-o-y to $141.6 million with Grand Venture Tech being able to secure orders from its new front-end semicon customers.
“Orders from these customers could gather pace into FY2025, leading to a 10.2% y-o-y revenue growth,” says Tng.
“At the macro level, management believes that there are opportunities arising from the ongoing outsourcing trend by US/Europe companies into lower cost Southeast Asia. According to management, Grand Venture Tech continues to make strides in onboarding its front-end semiconductor customers in the metrology, inspection, etch and wafer deposition segments of the semicon industry,” he adds. “The group is working on several first-article inspections for its semiconductor customers. A new plant dedicated to front-end customers is on track to be ready by end-4QFY2023 and production equipment have been installed.”
In the near-term, however, the analyst is expecting Grand Venture Tech to report a net profit of $1.61 million for the 3QFY2023 ended Sept 30, down 53.3% y-o-y and 14.8% lower on a q-o-q basis. The company’s 3QFY2023 revenue could have also dropped by 17.9% but increased by 0.2% q-o-q to $27.01 million, based on Tng’s calculations. Grand Venture Tech is expected to report its results on Nov 8.
In FY2023, Tng expects Grand Venture Tech’s revenue to fall by 17.6% y-o-y to $108.0 million.
For the time being, Tng is retaining his earnings per share (EPS) forecasts for the FY2023 to FY2025.
“In its last net profit upcycle (three-year: FY2019 net profit of $3.1 million to FY2021 net profit of $17.6 million) Grand Venture Tech traded at an average P/E multiple of 11.6x. Rolling over to FY2025 using this average P/E multiple of 11.6x, our target price increases to 62 cents,” the analyst writes.
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“Hence, we upgrade our call on Grand Venture Tech to an ‘add’ from ‘reduce’ as we believe Grand Venture Tech could re-rate to this average P/E multiple as net profit growth resumes over FY2024 – FY2025,” he explains. “Previously [on Sept 25], we had valued GVT at 11.3x calendar year (CY) 2024 P/E (0.5 standard deviations or s.d. below its three-year average).”
As at 1.15pm, shares in Grand Venture Tech are trading 2.5 cents lower or 4.85% down at 49 cents.
