Manufacturer and seller of yachts Grand Banks Yachts (GBY) G50 recently reported a positive set of earnings in its latest 9MFY2023 and 3QFY2023 ended March 31. Earnings for the nine month period came in at $5.7 million, up $0.1 million a year ago, representing its highest earnings in over a decade and even surpassing pre-Covid-19 levels.
Revenue for 9MFY2023 was 42.1% higher y-o-y at $78.0 million.
For the 3QFY2023 period, revenue was $27.8 million and net profit after tax was $2.1 million, as a result of accelerated boat-building activities.
With its improvement in results, analysts at Lim & Tan Securities have maintained their “buy” call at an unchanged target price for GBY at 50 cents.
The target price represents a 10.2x FY2023 P/E and 8.6x FY2024 P/E. “Trading at 6.1x forward P/E, 2.3x ex-cash P/E and 0.9x P/B, we continue to believe GBY’s distressed valuations are unjustified,” say Yon and Chan.
Analysts Nicholas Yon and Chan En Jie note that GBY’s share price surged to 35 cents before 2QFY2023 but declined to 29 cents post-results following the announcement of a declining order book and bleaker outlook, suggesting that earnings have peaked.
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“However, we refute the market’s view as the latest 3QFY2023 orderbook shows that fear of post pandemic demand slowdown is overblown, the board’s approval of the capacity expansion (albeit more of a replacement of Australian shut down capacity) is another sign of that,” sat Yon and Chan.
The analysts note that GBY recorded six new orders in 3QFY2023, bringing its order book to $178 million which will take one to two years to fulfil. GBY has also secured the first order of its latest yacht model, Palm Beach 85 (PB85), which Yon and Chan believe carries higher margins.
The analysts add that GBY has plans to expand its current Pasir Gudang yard to add about 25% of usable floor space to its operations, which will allow the luxury boat manufacturer to ramp up its production capacity and improve boat delivery times.
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They note that GBY was a beneficiary of the Covid-19 pandemic where order book shot 250% from $55 million in FY2019 to $183 million in FY2022, as people sought luxury yachts as an alternative to flying.
With the resumption of air travel post reopening of borders, GBY has continued to fulfil and secure new orders to maintain its order book, thereby continuing to signal that it is not a pandemic stock, say the analysts.
As GBY continues to clear its backlog of lower-margin/priced models and focuses on its new higher margin models Grand Banks 85 (GB85) and PB85, the analysts believe that higher profitability will come in as they continue to deliver on their order books.
Taking their peer Ferretti into comparison, which trades at more expensive valuations of 11.9x forward P/E and 1.2x P/B, Yon and Chan note that Ferretti announced a record order book of 1.5 billion euros ($2.18 billion), a 15.4% increase from 2022.
“Like GBY, Ferretti continues to see a very positive market with strong demand coming from all geographies and renewed interest in worldwide boat shows,” the analysts say.
The analysts say that they see positives from sustainable market demand, a robust order book providing clear future revenue visibility, strong balance sheets, and distressed valuations compared to its peers.
“As GBY commences production on the higher priced boats (three price hikes over two years, which have started to seep in as evident from its rising gross margins), we believe our GBY forecast of $10.7 million for FY2024 is attainable and thus maintain our price target of 50 cents,” say Yon and Chan.
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Furthermore, the analysts note that ever since the group’s CEO Mark Richards took over in 2014, the company has been on a sustainable growth path and should continue to report respectable results moving forward.
“We think GBY is now at an inflection point and market has not yet appreciated GBY’s merits and our target of $0.50 represents 10.2x FY2023 PE / 8.6x FY2024 PE, which presents a good risk to reward opportunity for investors,” say the analysts.
As at 4.07pm, shares in GBY are trading flat at 30 cents.
