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Simons Trading Research

Author: simonsg   |   Latest post: Thu, 14 Feb 2019, 06:30 PM

 

Grand Venture Technology - IPO Factsheet

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Background

  • GRAND VENTURE TECHNOLOGY LTD (SGX:JLB) is a trusted manufacturing solutions and service provider for the semiconductor, analytical life sciences, electronics and other industries, with operations in Singapore, Malaysia (Penang) and China (Suzhou). They serve some of the largest OEMs in these industries, by providing a range of engineering, assembly, testing and product lifecycle management services for the manufacture of complex precision machining and sheet metal components and modules.
  • Grand Venture Technology derives their revenue primarily from their two principal segments of:
    1. semiconductor; and
    2. analytical life sciences, electronics and others.
  • While the company has experienced growth in all key segments, revenue contribution from the semiconductor segment has increased at a faster rate, rising from approximately 73.9% in FY15 to approximately 79.1% in FY18.

Issue Statistics

  • Offer Size: 42.918m new shares.
  • Public Tranche: 0.8m shares. 
  • Placement Tranche: 42.118m shares
  • Price: S$0.275.
  • NAV per share (post IPO): S$0.1088.
  • Historical PE: 13.3x (FY17). 
  • Market Cap (post-IPO): S$64.4m
  • Open: 15 Jan 19.
  • Close: 21 Jan 19, 12.00 noon.
  • Trading: 23 Jan 19, 9.00 am (on “ready” basis).
  • Lead Manager: CIMB.

Business Strategy and Future Plans

  • Enlarge its customer base in both existing and new market segments, by leveraging on its capabilities and technological know-how.
  • Invest in and enhance its operational and engineering capabilities.
  • Expand its market reach, technological know-how and operational capabilities via M&As, JVs and partnerships.

Competitive Strengths

  • Broad range of engineering and assembly services as well as products across the semiconductor, analytical life sciences and electronics industries.
  • Strong relationships with customers who are leading players in their respective industries.
  • Commitment to investing and expanding its manufacturing capabilities.
  • High barriers to entry for their businesses (ie technical know-how involved in complex precision machining, sheet metal fabrication as well as assembly and testing cannot be replicated easily).
  • Strong and experienced management team.

Key Risks

  • Dependence on their relationship with major customers.
  • Exposed to the risks of their customers’ end-markets in semiconductor capital equipment and analytical life sciences equipment, and the cyclical nature of the demand for electronic products.
  • May be affected by significant increase in raw material prices.
  • Reliant on their suppliers, and exposed to the risks of components and raw materials shortages and price fluctuations.
  • Subject to lease renewals and relocation risks, in respect of their Malaysian and China operations.
  • Production is planned based on their customers’ projections of the demand for their products, which may not materialise in the form of orders.
  • Required to hold various licences and permits to operate their businesses.
  • Risks associated with debt financing including restrictions on payment of dividends.
  • Significant capital outlay required for their businesses, as well as implementation of their growth strategy.
  • Risk of insufficient insurance coverage.
  • May face intense competition given the nature of their businesses.
  • Dependent on certain key management personnel.
  • Dependent on their ability to attract and retain skilled and experienced personnel and maintain labour costs.
  • Dependent on their ability to employ foreign workers.
  • Subject to limits on overtime worked by their employees.
  • Pursuant to Malaysia’s Employment Act 1955, the company is required to provide a minimum amount of paid leave, and not to restrict employees from participating in unions.
  • Subject to Bank Negara Malaysia’s Notice 7: Export of Goods (Part A: Receipt by Resident) of the Foreign Exchange Administration Rules.
  • Required to make sufficient statutory social welfare benefit payments for their China employees.
  • Subject to penalties for past non-compliance with certain reporting formalities.
  • Subject to penalties for past failures to obtain certain environmental approvals.
  • May be affected by changes to accounting standards and policies, particularly Financial Reporting Standard 116 issued by the Accounting Standards Council Singapore.
  • May face inventory obsolescence that affects profitability.
  • Pricing pressures on their customers may have a negative impact on their financial performance.
  • No assurance that their business strategies and future plans will be commercially successful or that they will be able to manage their growth effectively.
  • Their production facilities may face disruptions.
  • The group’s businesses, financial condition, results of operations and prospects may be adversely affected by exchange rate instability.
  • Exposed to potential product liability claims and may become involved in disputes regarding their businesses.
  • Exposed to the credit risks of their customers.
  • Sensitive to regulatory, economic, social, political, consumer sentiment and competitive conditions in Singapore, Malaysia and China.

Dividend Policy

  • No formal dividend policy.

Source: UOB Kay Hian Research - 17 Jan 2019

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