SAC Capital analyst Lim Shu Rong has upgraded her recommendation on Grand Venture Technology to “buy” from “hold” previously.
Lim’s upgrade on March 18 comes as the precision manufacturing firm’s results for the FY2021 ended December stood above expectations.
During the year, Grand Venture Tech reported earnings of $17.4 million and revenue of $116.3 million respectively. The company’s earnings represented a 225.1% y-o-y surge, while revenue was up 89% y-o-y.
In her report, Lim also noted that production capacity is no longer a limiting factor for the company, with its second factory having been completed. It now contributes an additional capacity of 20% to the company.
“With the extra capacity, management hopes to bring back orders that were previously contracted out, hence, improving [their] margins,” writes Lim.
“Most of Grand Venture Tech’s sheet metal fabrication works will also be consolidated at Formach Asia’s Johor factory. This will free up some space in Singapore for [the company] to take on new projects and orders,” she adds.
Development in its front-end capabilities is one of the key catalysts to Grand Venture Tech’s growth, says Lim, who notes that the company is in talks with new customers. It has also allocated space in its integrated hub upon its completion in late 2022.
To this end, the analyst says she expects to see significant progress only from FY2023 to FY2024 onwards as the onboarding – including the qualification process and ramp up takes time.
On this, Lim estimates that Grand Venture Tech is expected to take on more debt to fund its expansion due to the investment in machines and equipment. She has thus upped her cost of debt estimates to 5.3%.
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In the 1HFY2022, Lim expects Grand Venture Tech to see a smaller delivery of its semiconductor components as one of its main customers, Teradyne, has guided a lower forecast for the period with a 15% to 20% drop in sales.
“[A] catch up in shipment is likely to be at the end of FY2022 or [at the] start FY2023,” writes the analyst.
While Lim has upped her topline and bottom line estimates for the FY2022 by 23% and 36% respectively, she has lowered her target price on the counter to $1.195 from $1.30 previously.
The lower target price accounts for a higher cost of debt and market risk, says the analyst.
As at 10.54am, shares in Grand Venture Tech are trading 1 cent lower or 1.05% down at 94.5 cents
Photo: Albert Chua/The Edge Singapore
