Including the foreign exchange (FX) gains totaling RM11.4m, Greatech posted a strong 9MFY21 profit growth of +92% YoY to RM114m, mainly due to higher revenue contribution from its production line systems (PLS) segment, and supported by its electric vehicle (EV) battery pack assembly line order. The results were broadly in line with our and consensus full-year earnings estimates, making up 70% and 69%, respectively. During the quarter, orderbook replenishment came in strongly as it doubled to RM426m. We keep our Outperform call with an unchanged TP of RM7.70 for now, pending more clarity from management post-analyst briefing. Our TP is based on a PE multiple of 45x FY22 EPS.

• EV energy storage continues to be the key growth driver. Greatech’s 3QFY21 revenue registered a +25.7% YoY growth to RM95.3m, due to stronger contribution from both production line systems (PLS) and single automated equipment segments. Performance of the PLS segment continued to be led by electric vehicle energy storage albeit contributions from PLS declining from 88.9% in 2QFY21 to 65.7%.

• Margins under pressure. Despite stronger topline growth, higher freight charges and travelling expenses led to a steep decline in margins. The Group’s gross margin dropped from 45.9% to 35.7%. Higher freight charges were related to shipment, installation and commissioning of machines abroad as it derived most of sales from overseas markets. 3QFY21 reported profit rose 25% YoY to RM29m, on the back of FX gains totaling RM4.4m and a decline in administrative and marketing expenses (-9.4% YoY).

• Orderbook doubled to RM426m. The strong increase in orderbook, which is expected to last until 2H of 2022, was mainly driven by the Group’s solar customer, which is focused on expanding its manufacturing capacity in the US and India.

• Ballooning trade receivable a slight concern. During the quarter, the Group’s trade receivable saw a steep quarterly increase from RM41.3m to RM125m. It also incurred impairment losses on trade receivable amounting to RM3.6m while there was a write back of RM1.2m on trade receivables during the period.

Source: PublicInvest Research - 2 Nov 2021