Grand Venture – Waiting for a recovery

Excerpts from CGSCIMB report

Grand Venture (SGX: JLB)

• We visited Grand Venture Technology (GVT) last Monday, 18 Sep for an operational update from management.
• GVT expects its semicon business to see a recovery in FY24F as it believes its customers’ excess inventories could have been depleted by then.

Reiterate Reduce and TP of S$0.51. We think GVT could release its 3Q23F business update in the week of 8 Nov 2023.

Semicon (48% of 1H23 rev): hoping for gradual recovery in FY24F

Management reiterated its earlier comments issued in its 1H23 results release that the outlook for the semiconductor and electronics industry remains affected by geopolitical tensions and weakness in the global economy. Management is optimistic that there are some signs of easing of excess inventory and expects order momentum to pick up towards the year end and into FY24F. Management believes the mid- and long-term outlook of the semiconductor industry is strong due to growing investment and innovation in artificial intelligence and its applications. Hence, GVT continues to grow its capabilities, expand production capacity, and enhance its service offerings to be ready for the next industry uptick. According to management, GVT continues to make strides in onboarding its frontend semiconductor customers in the metrology, inspection, etch and wafer deposition segments of the semicon industry. The group is working on several first-article inspections for its semiconductor customers. A new plant dedicated for front-end customers is on track to be ready by end-4Q23F and production equipment have been installed.

Others (52% of 1H23 rev): expected to remain stable

For its other businesses (life sciences, medical, electronics and aerospace), orders have been relatively stable. Overall, we expect the life sciences segmental revenue to fall 4% yoy as customers in this segment had overstocked components leading to lower orders in 1Q23 as they digest inventory. For the aerospace business, GVT is optimistic the recovery in global air traffic will lead to an increase in component orders from customers.

Valuation/Recommendation

GVT currently trades at 12.5x CY24F EPS forecast, while we value GVT at an unchanged 11.3x CY24F P/E (0.5 s.d. below its 3-year average) given limited visibility of an early recovery. As such, we reiterate our Reduce call as the semicon recovery could be gradual and the pace of orders from new front-end customers could be slow in FY24F. Grand Venture share price chartYou can find the full report here and the company website here.