DBS Group Research’s Ling Lee Keng and the Singapore research team has initiated coverage on Grand Venture Technology (GVT) with a “buy” call and $1.50 target price, calling the company a “promising high growth venture”.
In their April 14 report, the team, led by Ling, writes that GVT rides on a positive industry outlook, highlighting that its expansion into the front-end semiconductor space is a key growth driver.
The outlook for all three of its business segments also “remains positive”, the team says.
The semiconductor industry, which contributed 71.1% to GVT’s revenue in FY2021, remains positive, with a revenue CAGR of 39.3% during 2017-2021.
Separately, the life sciences segment will also benefit from growing mass spectrometer demand and advancements in medical technologies will be advantageous to the electronics and medical segment.
The DBS team thinks GVT is well poised to take advantage of these industry trends, saying that the company is in “expansion mode” in the last two years.
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GVT’s 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.
Its increased capacity and its growing revenue base enable GVT to reap the benefits from economies of scale.
“We expect GVT to maintain its FY2021 net margin of 15.1% – which jumped from 8.5% in FY2020 – going forward, supported by expanding capacity and revenue, and Industry 4.0 initiatives,” says the team.
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The team explains that its target price is based on an 18x P/E ratio of FY2023 earnings, which is close to its historical peak, noting that the company is on a “robust growth trajectory”.
Furthermore, GVT is currently trading at a FY2023 price to earnings growth ratio (PEG) of about 0.4x, which DBS calls “attractive”, compared to its peers’ 1.2x.
However, the research team also warns that some risks to their view include prolonged supply chain disruptions; pandemic related lockdowns and rising raw material prices.
As at 2.12pm, shares of GVT were trading at $1, with a FY2022 price to book ratio of 2.6 and dividend yield of 1.4%.
