We recently attended Greatech Technology (Greatech) virtual briefing hosted by management. We gather that management is eyeing another RM228m worth of orderbook for the remainder of 2021, led by the solar and EV battery segments. Current solid outstanding orderbook stands at about RM426m. On a more exciting news, the lucrative medical segment, which is expected to start making contribution from end-2022 or 2023. 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.
- 3QFY21 results round-up. During the 3QFY21, the Group’s receivable jumped by 3-fold or RM84m to RM125.5m. Management explained that the huge increase was mainly attributed to the RM70m billing for First Solar following their recent expansion in Ohio factory. The remaining RM10m was due to Lordstown Motors Corp, which had been collected last week. In addition, there was a delay in installation during the third quarter due to stricter Covid-19 lockdown imposed by Vietnam authority. The rescheduled delivery orders totalling RM30m will be recognized in the next 2 quarters.
- Acquiring land for Batu Kawan IV plant. Greatech had announced that they entered into sale and purchase agreement with the Penang Development Corporation for the acquisition of a 11.57-acre piece of leasehold land in the industrial park for ta total purchase consideration of RM27.7m. The proposed construction of the new operational plant, which has a built-up area of 265k sq ft, is expected to commence by 1Q 2022 and will be completed by 3Q 2022. We believe the plant is mainly catered for the production of lucrative medical equipment lines.
- Unlikely to repeat similar margin compression. Management also guided that the steep decline in 3QFY21 gross margin from 45.9% in 3QFY20 to 35.8% was mainly affected by the inflated freight cost and travelling expenses to the US. The shipment was supposed to be by sea but was delivered by air due to the urgent request. Management is in the midst of negotiating with its EV customers to reimburse the extra logistic costs. On a positive note, management is confident that it can sustain its target of 30% net margin level in 2022 and it does not foresee any similar impact on its gross margin in the subsequent quarters.
- Confident in bagging more orderbook. During the quarter, orderbook jumped from RM206m in 2QFY21 to RM426m (refer to Figure 2). About RM150m of the contract won is related to the solar segment. Solar made up 85.5% of the total orderbook and EV contributed about 12.3%. Note that the Group is eyeing another RM228m worth of orderbook in the near-term and also another RM500m potential jobs in 2022. We believe it could be related to one of the EV battery suppliers for Tesla.
Source: PublicInvest Research - 5 Nov 2021