Greatech delivered a 135.5% YoY growth in 1HFY21 net profit to RM85m, mainly due to higher revenue contribution from its production line systems (PLS) segment, supported by its electric vehicle (EV) battery pack assembly line order. The results came in within both our and consensus estimates at 52%. Orderbook currently stands at RM206m, from RM293m in 1QFY21. We understand that Greatech is currently finalizing orders with its customers, hence the low order replenishment. We are keeping our forecasts and rating unchanged for now, pending an analyst briefing. Maintain Outperform, with an unchanged TP of RM6.80, implying a PE multiple of 40x on its FY22F EPS of 17sen per share.

• Supported by EV battery orders. Greatech’s 2QFY21 revenue recorded a 142.5% YoY growth to RM136.4m, due to stronger contribution from its PLS segment, offsetting the impact of weaker contribution from its single automated equipment (SAE) segment. Performance of its PLS segment was lifted by its EV battery assembly line orders, which made up c.90% of the PLS segment’s revenue. Despite better topline growth, higher freight charges and higher raw material costs has led to a slight margin compression, whereby the Group’s gross margins were 2.7ppts lower YoY, to 36.1%. The higher freight charges were due to customers’ request to use air freight, in order to shorten the transit time. Nevertheless, the additional charges incurred are expected to be recoverable. In tandem with the stronger topline, net profit was up 117.7% YoY to RM38.4m.

• Weak replenishment not a concern. Greatech has an outstanding orderbook of RM206m currently, as compared to RM293m in 1QFY21. We are not overly concerned on the relatively weaker orderbook replenishment, as Greatech is currently finalizing orders with its clients, and is expected to reflect in its orderbook next quarter.

• Massive expansion ahead. On top of First Solar’s earlier plans to build a 3.3GW manufacturing facility in Ohio, it has recently announced yet another expansion in India, with a nameplate capacity of 3.3GW. Both the expansion in Ohio and India are targeted to be operational by early-CY23 and 2HCY23 respectively.
  
  Similarly, Greatech has also earmarked an additional c.RM200m for capital expenditure, to increase its manufacturing capacity. With this expansion, total combined floorspace is expected to reach 1m sqft by FY22. We believe the expansion is both timely and necessary for Greatech to capture more orders, be it from First Solar or its EV clients, going forward.

Source: PublicInvest Research - 12 Aug 2021