Brokers' take: SAC Capital upgrades Grand Venture to 'buy' but trims target price

EXPECTATIONS of higher cost of debt and market risks have prompted SAC Capital to lower its target price for JLB to S$1.195 from S$1.30.

In a report on Friday (Mar 18), SAC analyst Lim Shu Rong said this was because it expects the precision manufacturing company to take on more debt to fund its ongoing expansion.

The research house has nonetheless upgraded its call on the mainboard-listed stock to "buy" from "hold", after Grand Venture's latest set of FY2021 results beat SAC's estimates for both revenue and net profit due to sales growth across all 3 of its segments.

It has also lifted FY2022 estimates by 23 per cent for revenue, and by 36 per cent for net profit.

In Lim's view, production capacity is no longer a limiting factor for Grand Venture since it completed its acquisition of a second factory, which contributes an additional capacity of about 20 per cent and is expected to improve margins.

With most of the group's sheet metal fabrication works to also be consolidated at Formach Asia's Johor facility, Lim said this will free up some space in Singapore for Grand Venture to take on new projects and orders.

Development in front-end capabilities is a key catalyst to Grand Venture's growth, in his view.

While Grand Venture is currently in talks with potential new front-end customers and expects to complete its planned integrated hub by late 2022, the analyst only expects to see significant progress from FY2023 to 2024 as he says onboarding - including the qualification process and ramp-up - will take time.

"Investment in machineries and equipment comes after obtaining commitments from customers," he explained.

Lim also noted that a main customer of Grand Venture had also guided for lower sales in H1 of 2022. He anticipates shipment volumes for this customer to catch up by end-FY2022 or at the start of FY2023.

As at 10.13 am on Friday, shares of Grand Venture were trading S$0.005 or 0.5 per cent lower at S$0.95.

READ MORE:

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• Grand Venture acquires Penang manufacturing facility for RM13.5m
• Catalist-listed Grand Venture to transfer to mainboard on Nov 30
• Grand Venture proposes to acquire China, Malaysia companies for S$20m