Automakers have been joining hands through information sharing and standardization as the race to offer affordable electric vehicles (EV) intensifies. Macquarie Equities Research (MQ Research) believes higher EV standardization from the automakers will have a positive spillover effect on factory automation solutions company Greatech Technology (Greatech), with more opportunities as the automakers increase their spending.

Bullish investors who are keen to gain leveraged exposure to Greatech may consider call warrants GREATEC-CK and GREATEC-CM. Read on for an excerpt of MQ Research’s report dated 9 September and its target price, and for more details on warrants over Greatech.

Cross-sharing EV platforms indicates higher EV standardization

• The Nikkei reported details on EV platform sharing between Honda Motor (7267 JP) and General Motors (GM). The Nikkei highlighted that by sharing EV platforms, the two firms will be able to share >50% of auto parts, standardizing motors, batteries, inverters and other key parts – likely a positive for Honda. MQ Research’s factory automation (FA) analyst reiterated their positive stance on the sector and highlighted standardization will drive structural growth for factory automation applications, with Fanuc as a key beneficiary.

Positive Read-through to Greatech

• Where does Greatech fit into the ecosystem? From MQ Research’s understanding and channel checks, Greatech does not compete directly with Fanuc (6954 JP) or Keyence (6861 JP) on FA but rather sources components such as vision system, sensors, controllers and industrial robots from these companies to be integrated into its production line for EV which it designs as well. Greatech plays more of a role of a machine designer and integrator where it installs the FA parts on the production lines as per its clients’ requests which are highly customised. For example, Keyence provides vision systems, controllers and sensors, among others, which are then integrated in the production line of Greatech and used for quality and accuracy checking during subassemblies. Overall, MQ Research believes higher EV standardization from the automakers will have a positive spillover effect on Greatech with more opportunities as the automakers increase their spending.
• Historical high orderbook on its way; RM163m or 30% of additional RM550m orderbook guided 2H21 secured. MQ Research expects orderbook to reach historical highs in 4Q21/1Q22 based on management guidance and was encouraged when Greatech announced RM163m additional orderbook (80:20 split between solar:EV) on Aug 26th which brings its total orderbook to RM369m (1Q21 RM293m). With this, the current orderbook split of RM369m is 63:36:2 solar:EV:others. MQ Research expects another RM380m to be secured in 2H21. This gives MQ Research comfort in its thesis i.e the effectiveness of its strategy to secure orderbook and acquire clients. Recall, Greatech recently upgraded its capex guidance to historical high of RM280m in FY21-22E (2.6x higher than initial Feb’21 guidance) for its 3rd and 4th factories in Penang, mainly to support growing potential EV customer base, which management updated include the automakers themselves. MQ Research believes there will be more room for share price rerating as new orderbook wins are announced, especially in the EV segment.

Action and Recommendation

• Maintain Outperform. EV orderbook win materialisation is the short-term catalyst for Greatech. It is a one-of-a-kind cleantech proxy in Malaysia with exposure to global emerging growth trends with 94% FY21E revenue originating from ‘cleantech’ industries; solar and EV.

12-month Target Price Methodology

• GREATEC MK: RM8.70 based on a price-earnings ratio (PER) methodology

Source: Macquarie Research - 10 Sept 2021