• Grand Venture Technology's FY20 revenue/net profit was 12%/22% above our forecast, driven by strong y-o-y revenue growth in the semiconductor and life science segments.
• Grand Venture Technology expects the growth momentum in its life sciences and medical segments to continue into FY21F.
• Reiterate ADD with a higher S$0.605 target price as more customer wins drive higher profitability.

Better-than-expected FY20

• Grand Venture Technology (SGX:JLB)’s FY20 revenue was 12% above our expectations. The semiconductor segment saw y-o-y revenue growth of 77% versus a 22% decline in FY19. The life sciences, electronics and others segments saw 18% y-o-y revenue growth.
• The semiconductor segment accounted for 69% of Grand Venture Technology's FY20 revenue while the life sciences, electronics and others segments accounted for the remaining 31%.
• Overall gross profit margin fell to 30.8% in FY20 versus 37.2% in FY19 as COVID-19 affected production at Grand Venture Technology’s plants in Malaysia and China. Despite this, FY20 net profit came in 22% above our forecast.
• In FY20, Grand Venture Technology suffered exchange losses of S$0.5m and received COVID-19 related grants/rebates amounting to S$0.6m.

Continues to be Growth Oriented

• On 12 Jan 2021, Grand Venture Technology entered into a conditional placement agreement with NT SPV 12, a wholly-owned subsidiary of private equity fund, Novo Tellus P/E Fund 2, to raise net proceeds of approximately S$23.5m (71.5m new shares at a placement price of S$0.33). S$19m of the proceeds have been earmarked for M&A.
• We think Grand Venture Technology will continue to invest in its capabilities and production capacity over FY21-22F in anticipation of strong demand from its semicon and life sciences, medical equipment customers.

Reiterate ADD on Grand Venture Technology's Growth Potential

• We reiterate our ADD call on Grand Venture Technology with a higher target price of S$0.605 (previously S$0.36) as we raise our FY21-22F EPS forecast by shareholders at the extraordinary general meeting on 1 Mar 2021.
• Our target price is based on a 3.31x FY21F P/BV multiple (previously 2.35x), derived from the Gordon Growth Model (COE: 7.5%; ROE: 18.9%).
• Downside risks include deterioration in customer demand due to escalation of the COVID-19 outbreak.
• Re-rating catalysts are new customer wins and commencement of mass production for customers’ products in FY21-22F.

Source: CGS-CIMB Research - 23 Feb 2021