• Grand Venture Technology’s 1H19 net profit was below our expectations as revenue was hurt by the slowdown in the semicon industry.
• Grand Venture Technology was listed on 23 Jan 2019 and this is its first set of half-year results post listing.
• Given the revenue miss due to the slowdown in the semicon industry, we have adjusted our forecasts downwards.
• We also downgrade to HOLD from Add and lower our Target Price to S$0.22.

1H19 Missed Due to the Downturn in the Semicon Sector

• GRAND VENTURE TECHNOLOGY LTD (SGX:JLB)'s 1H19 net profit missed our expectations at 23% of our full-year forecast.
• In the semicon segment, revenue fell 44% y-o-y as the semicon industry slowed down due in part to the global trade tensions.
• The life science segment did better with revenue growth of 83% y-o-y. As the life science segment contributed to a higher 46% of 1H19 revenue versus 21% in 1H18, gross profit margin improved to 37.9% from 32.1% in 1H18.
• No dividends were declared as Grand Venture Technology’s listing was motivated by its desire to grow the company further.
• Net gearing as at end-1H19 was 0.56x.

Growth Should Resume in FY20

• We think net profit growth could resume in FY20 as the semicon industry recovers and new customers/products in the life science segment start to contribute. One factor that could affect profitability will be the pace of investment (software, machinery, skilled labour) that Grand Venture Technology intends to undertake to grow the company.
• Resolution of the US-China trade tension as well as the Japan-Korea spat would be positive.

Cut to HOLD

• We downgrade our rating to a HOLD given the weak 1H19 performance.
• Our earnings cuts reflect the impact of trade tensions on the semicon segment of Grand Venture Technology’s business. Given its small profit base, earnings have higher sensitivity to revenue volatility. At 10.0x FY20F P/E (24% discount to the global sector average), our Target Price falls to S$0.22.
• Potential re-rating catalysts are further order wins and earnings recovery in FY20.
• Downside risks are pushback in customer orders and how the US-China trade war plays out.

Source: CGS-CIMB Research - 16 Aug 2019