Brokers’ take: CGS-CIMB downgrades Grand Venture Technology on possible delayed recovery

CGS-CIMB has downgraded its call on manufacturing solutions company Grand Venture Technology from “add” to “reduce”, as it expects the firm’s net profit recovery to be delayed until 2024.

The research house slashed its target price for the counter from S$0.85 to S$0.40 to reflect a lower price-to-earnings (P/E) multiple of 9.6 times, as compared to 13 times previously. The new multiple represents half a standard deviation point below the stock’s historical four-year average as opposed to a half point above previously.

In a report on Friday (Oct 14), analysts of CGS-CIMB said the downgrade and lower price target comes amid slowing economic growth and expectations of longer time needed to onboard new front-end customers.

This comes as the analysts believe that Grand Venture’s progress has been slowed by the need for further large capital expenditure - assuming its ongoing diversification strategy is successful, and requires a need for “firm customer commitment” to maintain its global competitiveness.

“This would require new capabilities on Grand Venture’s end and gaining customers’ confidence that Grand Venture can replace their existing suppliers for their Asia-based factories,” they added.

CGS-CIMB has also reduced its revenue forecasts for Grand Venture by 4.2 per cent to 19.1 per cent for FY2022 to FY2024. This has resulted in lower earnings per share (EPS) forecasts for the same period by 8.1 per cent to 35.9 per cent.

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It does not expect the group to report any EPS growth for FY2023.

“We think the revenue shortfall will not be able to cover Grand Venture’s expanded cost base arising from its past organic expansion and mergers & acquisitions,” said the analysts, noting that Grand Venture’s operating expenses in H1 of FY2022 grew 46 per cent.

As of 11.36am, shares of Grand Venture were trading 1 per cent or S$0.005 lower to S$0.50.