Greatech Technology (Greatech) announced yesterday that it has secured new orders for production line systems worth RM160m from a customer in the solar industry. These new orders are expected to sustain until the 2QFY23. We make no changes to our numbers as we have factored in orderbook replenishment in our earnings forecasts. Meanwhile, the company’s share price took a beating recently, down 29% YTD, on concerns over global rate hikes. It is currently trading at an undemanding forward valuations of 28x compared to 42x a month ago. In view of the attractive upside potential of 61%, we suggest investors to accumulate Greatech shares. Maintain Outperform call with an unchanged TP of RM7.70 based on 45x FY22 EPS.

• Bringing cumulative orderbook to RM586m. After securing this latest solar production line system contract, the group’s total orderbook increased to RM586m. Orderbook from the solar industry increased from 85.5% to 89.4%. Based our channel checks, the gross margin for the solar production line contract could be as high as 40%.

• Compelling risk-reward. In line with the sell down of the global technology stocks, Greatech’s current valuation has fallen sharply as investors shying away from the high valuation sector due to the fear of global rate hikes. Nevertheless, we reckon that its current valuation is unwarranted, trading at -1 standard deviation, considering the exciting earnings growth, led by both solar and electric vehicle industries.

• Reiterate Outperform call. In view of the tremendous upside potential of 61%, we suggest investors to relook at the counter following the recent sell-off. 4QFY21 results are expected to be announced by end-Feb and we expect to see strong earnings catch-up in the final quarter.

Source: PublicInvest Research - 25 Jan 2022