We attended from the Greatech Technology’s (Greatech) virtual groundbreaking ceremony yesterday for the commencement of construction for the new RM51m Batu Kawan III building. As guided in the previous report, the group has been expanding its manufacturing floorspace with an aim of doubling it to c.1.1m sq ft by mid-FY22 to cater for the increasing customer demand from solar, EV battery and medical fields. Meanwhile, it also unveiled its new corporate slogan called “Accelerate the Future”. Given the robust earnings outlook, we maintain our Outperform call on Greatech, with an unchanged TP of RM7.70, as we peg our FY22F EPS of 17.0sen to a PE multiple of 45x.

• Massive capacity boost in the next one year. The 265k sq ft Batu Kawan III production and office building will be sitting on a 2.83 ha of land in Batu Kawan. The third manufacturing plant can accommodate up to 500 employees. It is strategically located near Greatech’s two new manufacturing facilities in Batu Kawan as well as the group’s corporate headquarters in Bayan Lepas, Penang. The construction of the factory is expected to be completed by Apr 2022 and ready for occupancy in May 2022. Including the upcoming commencement construction of Batu Kawan IV manufacturing plant and the expansion of its existing HQ in Bayan Lepas, the group’s combined floorspace will jump from 391.4k sq ft to 1.2m sq ft by mid-2022 (refer to Table 1). All-in, the total capex for the massive capacity boost will cost about RM200m. Besides having presence in the US and Malaysia, the Group also plans to set up sales offices in Germany, India, Switzerland and Ireland.

• Securing new orderbook of RM163m as at end Aug-21. This brings the group’s total current outstanding orderbook to a solid RM369m, providing an earnings visibility until 2HFY22. Note that the bulk of new orders are from the solar industry, which accounts for about 80% of existing orderbook while the remaining 20% from the EV battery segment. Moving forward, we are expecting the group to receive additional c.RM300-400 m new orders in 4QFY21, primarily from its key solar customer, to finish the year strong with a targeted RM550m outstanding orderbook.

• FY22 orderbook forecasts. We gather from management that the group is targeting at least RM500m new orderbook replenishments in FY22 (refer to Figure 1), with more than half is contributed by the solar segment (c.RM300m) while EV and medical segment to potentially contribute c.RM100m each. Note that Greatech has already identified 25 prospective clients in the medical segment thus far, with most residing in the US. We also highlight that Greatech is aiming to secure another 3-4 new customers in the EV battery space from the 8 shortlisted EV firms in the US, on top of the 4 EV clients it is serving currently.

Source: PublicInvest Research - 14 Oct 2021