• Grand Venture Technology (SGX:JLB)'s FY21 results were ahead of our estimates of revenue (+17%) and net profit (+21%) due mainly to higher sales across all 3 segments. Revenue rose 89% y-o-y (Semiconductor: +96%, Life sciences: +53%, Electronics, medical and others: +110%) and consequently, net profit surged 237%.

Production Capacity Is No Longer a Limiting Factor

• Grand Venture Technology's 2nd factory bought in March 21 has been completed and contributes an additional ~20% capacity. With the extra capacity, management hopes to bring back orders that were previously contracted out, hence, improving margin. Most of Grand Venture Technology’s sheet metal fabrication works will also be consolidated at Formach Asia’s Johor factory. This will free up some space in Singapore for Grand Venture Technology to take on new projects and orders.

Development in Front End Capabilities Is Key Catalyst to Grand Venture Technology’s Growth

• Grand Venture Technology is in talk with new customers from the front end and has allocated some space in its integrated hub once it is completed in late 2022. We expect to only see significant progress FY23-24 onwards as onboarding including qualification process and ramp up takes time. Investment in machineries and equipment comes after obtaining commitments from customers. Grand Venture Technology is expected to take on more debt to fund its expansion. We increase our cost of debt to 5.3%.

Smaller Delivery of Its Semiconductor Components in 1H22

• One of Grand Venture Technology’s main customer, Teradyne, has guided a lower 1H22 forecast with a 15-20% drop in sales due to a slower transition to 3nm technology. Catch up in shipment is likely to be at the end of FY22 or start FY23.

Grand Venture Technology - Earnings Forecast Revision & Recommendation

• We revise our FY22E topline and bottomline estimates for Grand Venture Technology up by 23% and 36% and introduced the 2 new subsidiaries of Grand Venture Technology are not included in the estimates.

Source: SAC Capital Research - 18 Mar 2022