SAC Capital has initiated “buy” on manufacturing solutions and service provider Grand Venture Technology (GVT) with a target price of $1.18, representing a 15.7% upside from its last-closed price of $1.02 on July 22.
The discounted cash flow (DCF)-derived target price translates into an FY2021/FY2022 price-to-earnings (P/E) of 25.1 times and 21.2 times respectively, says SAC Capital analyst Tracy Lim in a July 23 report.
To Lim, GVT is likely to see continued “solid growth” in all of its three segments, with the strong global demand for semiconductors.
To be sure, she has estimated GVT to grow at a compound annual growth rate (CAGR) of 19.7% in 2021 and 8.8% in 2022.
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In addition, the mass spectrometry market is seeing heightened demand on the back of more stringent regulations and higher testing activity, while the aging population, higher income levels and rise in minimally invasive procedures will strengthen demand for the production of surgical microscopes, adds Lim.
Through its placement exercise in March, GVT has raised $23.5 million in net placement proceeds, of which $8.0 million is allocated towards capex.
Its new factory in Penang will add some 23% to GVT's capacity when it is fully operational.
“Management guided that visibility of orders is around nine to 12 months, but they are limited at the current level of production capacity. Thus, we expect [a] high return on investment on their capital spending,” says Lim.
During the 1QFY2021 ended March, GVT saw net profit growth of around 5.3 times to $3.3 million due to a growing share of customers.
The group’s revenue for the period increased by 59.0% y-o-y to $23.0 million from $14.5 million in the 1QFY2020.
The higher revenue was driven by growth in all three business segments, led by the semiconductor segment, followed by electronics, medical and others, and the life sciences segment.
The group also reported stronger gross margin of 32.1%, from 22.9% in the 1QFY2020, on improved capacity utilisation.
On her positive sentiment on the counter, Lim explains that she also likes GVT for its “experienced management team [who comes with over 20+ years of experience on average], and its history of profitability since 2016, even before its IPO in 2019.”
Key risks to the stock are restrictions on labour as well as key customer risks and competition.
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As at 1.33pm, shares in GVT are trading 2 cents higher or 2.0% up at $1.04, or 4.0 times P/B, according to SAC’s estimates.
The P/B includes the amount raised from the new placement shares.
Photo: Samuel Isaac Chua / The Edge Singapore
