Brokers' take: CGS-CIMB raises target price for Grand Venture to S$1.74 on expansion drive

WITH Grand Venture Technology JLB announcing that it plans to spend S$20 million to acquire 2 companies through separate sale and purchase agreements, CGS-CIMB is positive the company will continue on its expansion drive and make more acquisitions this year.

In a research note on Tuesday (Jan 4), analyst William Tng maintained "buy" on the stock, and raised the target price to S$1.74 from S$1.69 previously.

The higher target price is based on a valuation of 15.8 times the analyst's earnings per share (EPS) estimates for FY2023.

Tng values Grand Venture with a target price-to-earnings (P/E) ratio that is at a 10 per cent discount to the sector average P/E of 17.5 times, due to the company's smaller market capitalisation.

The mainboard-listed company said in December that it plans to buy China precision engineering company J-Dragon Tech (Suzhou) Co and Johor-based precision sheet metal manufacturer Formach Asia for S$12.2 million and S$7.8 million, respectively.

Grand Venture said the move will augment its capabilities and capacity in China and Malaysia, facilitate its penetration into new aerospace and medical diagnostics, as well as accelerate growth in its semiconductor and life sciences businesses.

The proposed acquisitions are expected to be completed by Q1 2022.

"We are positive on these acquisitions as they add production capacity and allow growth and new customers and penetrate into new industries," said Tng, adding that he expects the company's production capacity by floor space to grow by 36.9 per cent year on year in FY2022 after the acquisitions.

Factoring in the contributions from J-Dragon, Tng raised Grand Venture's EPS estimates for FY2022 and FY2023 by 4 and 5 per cent respectively.

However, for now, he does not anticipate any earnings impact from the acquisition of Formach.

Downside risks for the stock include operational disruptions, such as incidences of workers getting infected with Covid-19, power restrictions in the company's China plant, among others.

Shares of Grand Venture were trading flat at S$1.19 as at 1.13 pm on Wednesday.