SAC Capital has downgraded its recommendation on Grand Venture Technology to “hold” with a target price of $1.30.
This comes after the manufacturing company reported revenue of $53.5 million for the 1HFY2021 ended June, almost double that from the corresponding period the year before.
Earnings for the half-year period surged by some 282.7% y-o-y to $8.5 million on better margins.
The discounted cash flow-derived target price translates into a FY2021/FY2022 price-to-earnings (P/E) of 27.5 times and 22.2 times respectively.
See also: SAC Capital starts Grand Venture Technology at 'buy' with TP of $1.18
Analyst Tracy Lim has, however, maintained her topline estimates for the FY2021 and FY2022. She has also upped her bottomline estimates by 0.4% and 5.2% for the FY2021 and FY2022 respectively with lower forecasted expenses.
According to Lim in an Aug 13 report, the downgrade came as the company’s P/E of 28.29 times (as at Aug 12) is above the sector average of 19.14 times, although she sees “potential in its growth with the placement proceeds (net $23.5 million) and support from Novo Tellus, its strong customer base and its differentiated capabilities”.
“We are also cautious of Malaysia’s elevated Covid cases, Singapore’s manpower supply crunch, and China’s resurgence of cases in some cities which may cause supply chain disruptions,” she adds.
That said, Grand Venture Tech’s newly-bought Penang factory is expected to add some 38% to its capacity in Malaysia and some 20% to its total capacity.
The factory is said to begin contributions gradually from 4QFY2021.
“We continue to expect a higher return on invested capital (ROIC) for the coming two FYs, from the 9.1% figure in FY2020, especially seeing that [its] order book is strong and limiting factor lies in production capacity,” says Lim.
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As at 2.54pm, shares in Grand Venture Tech are trading 1 cent lower or 0.8% down at $1.22, with an FY2021 dividend yield of 0.4% and P/B of 5.1 times, according to SAC Capital’s estimates.
Photo: Samuel Chua/The Edge Singapore
