Greatech Technology Bhd (“Greatech”) which making its debut on the Ace Market is an industrial automation solutions provider with international top-tier clients. Recommend BUY with a target price of RM0.71 based on 13.5x PER FY20 as per closest industry players.

With a solid track record of 21 years in industrial automation, Greatech specialises in manufacturing of equipment which are used to automate processes in production line, ranging from a single automated equipment to a production line system. Geatech’s testament of competency is proven by its global client base from solar, semiconductor and consumer electronics sector such as First Solar group, Panasonic and Deca. Its revenue and net profit have been growing at an impressive compounded annual growth rate of 117.3% and 78.3% from FY15 to FY18 fuelled by expansion into the manufacturing of solar production line system in 2017.

Management plans to allocate 24.6% of the IPO proceeds for business expansion and development as well as marketing activities. These include setting up engineering sales and services support resources in the US as well as attending exhibitions both in the US and China partly for solar, consumer electronics and semiconductor and automotive battery segments. Meanwhile, 6.9% of the proceeds will be used for capital expenditure for new operational facility in Bayan Lepas which is expected to operate in 2H19. The R&D division which was established in May 2018 will utilise around 6.9% of the proceeds for R&D expenditure including the development of 3 prototypes in the pipeline. One of the prototypes is the battery segment in automotive industry. Another 50% from the proceeds is earmarked for working capital purposes.

The group has tax exemption due to its pioneer status which will last until 28 March 2023. Orderbook as at 15 April 2019 stood at RM91m, providing near term earnings visibility. Post listing, gearing ratio is set to improve from 0.12x to near zero level. Moving forward, growth catalysts of Greatech will bank on the rising demand of solar energy, lithium-ion batteries for electric vehicles as well as digitalisation in Industry 4.0.

Source: Rakuten Research - 13 Jun 2019