CGS-CIMB's William Tng has kept his "add" call on Grand Venture Technology JLB , following the manufacturer's move to acquire ACP Metal Finishing.
The acquisition was announced on Nov 30 and will add surface treatment to GVT's existing capabilities in precision manufacturing.
Surface treatment is a critical last-stage process that is required by GVT’s customers in the aerospace, front-end semiconductor, life sciences and medical segments.
The proposed acquisition of ACP enables GVT to reduce its reliance on external parties for surface treatment services.
At $17 million, the acquisition price translates into a historical P/B of 1.13x, based on ACP's end Sept 2023 book value of $15.1 million.
For ACP's FY2023 ended Sept 23, it incurred a slight loss of $0.76 million, from earnings of $1.53 million in the preceding year. Revenue in the same period was down from $18.07 million to $14.96 million.
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Since it was listed in Jan 2019, GVT has undertaken a rather active grow-by-acquisition strategy. According to Ting, GVT is next eyeing a business in advanced materials, giving itself a broader portfolio of related services to offer clients.
In the meantime, Tng has pencilled in a 5% reduction in earnings forecast for FY2023 ended Dec, no thanks to unfavourable forex.
In addition, with expected integration costs from ACP, Tng expects operating costs to increase by 6.9% in the current FY2024, leading to a 15.5% cut in projected earnings for the year. "Our FY2025 forecasts are unchanged," he adds.
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Nonetheless, Tng is upbeat that GVT will enjoy earnings growth this current FY2024 and coming FY2025. His target price of 62 cents is based on FY2025 PE of 11.6x, which is the average earnings multiple in the last earnings growth cycle seen between FY2019 and FY2021.
Downside risks include a slower-than-expected recovery in the semiconductor cycle, and sluggish or delayed resumption in demand from customers.
On the other hand, re-rating catalysts include potential new customer wins and accretive M&As leading to higher revenue and earnings potential.
GVT shares, as at 4.11pm, changed hands at 53 cents, down 0.93% for the day.
