• Earnings turnaround play. We see Grand Venture Technology as an earnings recovery play. Its FY23 net profit fell on a slowdown in the back-end semiconductor and electronics sectors, along with margin compression due to lower utilisation. The semiconductor sector is expected to pick up towards 2025, driven by a recovery in both front- and back-end segments. Meanwhile, GVTL’s orders from key customers are improving, along with a new shipment of high-bandwidth memory-testing equipment to a key back-end customer. It has also guided for strong FY24 revenue growth of 33-39% YoY.

• Growth driven by new capacity, customers and value proposition. GVTL recently commissioned its new Penang facility, which will enable it to increase production and sales to new front-end customers. It has also onboarded new back-end and front-end customers in the metrology, inspection, etch and wafer deposition sectors. GVTL will look to expand its services by offering more complex parts and components such as advanced packaging projects. It has already developed advanced materials machining capabilities in-house, and deepened traction with a life sciences customer.

• Semiconductor equipment sector expected to grow into 2025. According to Semiconductor Equipment and Materials International (SEMI), global sales of total semiconductor manufacturing equipment by original equipment manufacturers (OEMs) are forecasted to reach a record USD109bn in 2024. This is expected to continue into 2025, reaching USD128b (+17% YoY) – driven by both front- and back-end segments. We see a gradual recovery in 2024 before a more pronounced rebound takes place in 2025. Longer-term semiconductor equipment demand should be driven by ongoing technological and innovations in artificial intelligence (AI) applications, data centres, high-performance computing, and automotive electrification.

• Results highlights. 1H24 PAT grew 27% YoY to SGD4.3m on the back of SGD68m in revenue (+27% YoY). The revenue growth was driven by the semiconductor segment, where turnover surged by 32% YoY to SGD34m. Revenue of its electronics, aerospace, medical & others (abbreviated to EAMO) segment surged 32% YoY to SGD24m, with SGD4m contributed by newly acquired ACP Metal Finishing (ACP). Meanwhile, its life sciences segmental revenue grew 4% YoY to SGD10m. GPM expanded by 1.3ppt to 26.4%, led by the EAMO business. NPM remained flat at 6.3%. GVTL is guiding for FY24 revenue to be SGD148-154m, representing 33-39% YoY growth.

• Key risks. Key downside risks include a later-than-expected demand recovery, which will pose downside risks to our earnings recovery thesis.

Source: RHB Research - 20 Sep 2024