Greatech’s FY20 full year net profit registered a 68% YoY jump to RM87.8m supported by both the new order from the electric vehicle (EV) battery segment as well as existing orders for the photovoltaic (PV) segment. The results came in above our but was within consensus estimates at 118% and 103% respectively. The discrepancy in our forecast was predominantly due to lower than-expected tax charges. We also highlight that Greatech’s orderbook has increased significantly to RM351.2m, from RM266.9m in 3QFY20 and the additional orders were mainly contributed by Lordstown and First Solar. We adjust our earnings forecast for FY21-22F upwards by 17-26%, to account for a larger orderbook, as well as lower effective tax rate assumption. With that, our TP for Greatech is subsequently revised upwards to RM6.80, based on a PE multiple of 40x on its FY22F EPS of 17.0sen per share. Given the 12.2% upside, we upgrade Greatech to Outperform.

• Another new high. Greatech reported a 30.5% YoY increase in revenue, to a new high of RM76.3m. The growth was attributable to the higher revenue contribution from its production line systems’ segment. We reckon that the battery pack assembly line order for Lordstown has made its first maiden contribution to the Group during the quarter. Not to mention that the Group has also recognized revenue for the prototype battery pack assembly line supplied to its new client in the EV battery space, ATLIS. The Group’s net profit, has however, grown by larger quantum on a YoY basis, by 77.9%, to RM28.5m, mainly due to margin expansion arising from better product mix, as prototype production lines fetches better margin than its ordinary orders. Lower tax expenses during the quarter also contributed to the improvement in profit, as Greatech was granted pioneer status by the MITI. Effective tax rate for 4QFY20 stood at 4.8%, from 23.6% in 4QFY19.

• Sizeable order replenishment. We highlight that, as at 4th February 2021, Greatech’s orderbook stood at RM351.2m, from RM266.9m in 3QFY20. Based on our rough estimation, Greatech has clinched additional orders with value up to c.RM150m during the quarter, which we reckon was mainly contributed by Lordstown and First Solar. Lordstown has announced that it received a total of 100k pre-order units for its Endurance model in January, and having an additional battery pack assembly line was necessary, as we reckon that one single line was not sufficient to cater for this overwhelming amount of order.

Source: PublicInvest Research - 19 Feb 2021