CGS-CIMB Research analyst William Tng has retained his “hold” call on Grand Venture Technology (GVT) with a lowered target price of 51 cents from 54 cents previously. Tng’s report dated July 11 comes ahead of GVT’s results for the 1HFY2023 ended June 31. GVT is expected to release its results before Aug 10.

To Tng, the company’s revenue is likely to have declined 11.9% y-o-y and 7.7% h-o-h to $59.1 million for the six-month period. At the same time, the analyst estimates that GVT’s net profit may come in at $3.5 million, down 50.9% and 43.5% on a y-o-y and h-o-h basis. The lower figures are likely to be due to “muted customer demand”.

“We estimate revenue declined 6.9% y-o-y but improved 19.7% q-o-q to $32.2 million in 2QFY2023 while net profit fell 43.2% y-o-y but improved 31.6% q-o-q to $2.0 million in 2QFY2023 as the second quarter has historically been a better quarter,” Tng writes.

On the back of industry forecasters, Gartner and World Semiconductor Trade Statistics’ (WSTS) estimates, where global semiconductor sales are expected to fall by 11.2% and 10.3% in April and May this year, Tng has lowered his forecasts for the FY2023 to FY2025.

He has lowered his revenue estimates for the period by 2.7% to 4.4% on the back of weak business sentiment arising from geopolitical and trade conflicts, bringing about risks of inflation concerns and a global recession.

Accordingly, Tng’s lowered revenue forecast also lowers his net profit forecasts for the FY2023 to FY2025 by 8.3% to 12.6%.

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“We also pare down FY2023 gross profit margin estimate by 0.7 percentage points due to ongoing first article costs for potential new customers,” he writes.

“Potential front-end semiconductor customers that GVT is trying to develop continue to adopt a cautious stance on placing new orders, according to GVT. In its back end semiconductor segment, key customer BE Semiconductor Industries N.V. expects volume orders for its hybrid bonders to pick up over FY2024-FY2026 while key customer Teradyne expects its business to see a slight improvement h-o-h in the 2HFY2023," he adds.

Meanwhile, all is not lost, with GVT revealing that it had acquired new customers across metrology, inspection, etch and wafer deposition in the semiconductor production chain at its annual general meeting (AGM) on April 27.

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To Tng, the acquisitions mean that the company could see higher revenue potential in the front-end semiconductor business.

“GVT also highlighted that as at end-2022, the front-end semicon market size by revenue was US$94.8 billion ($126.85 billion) versus US$13.7 billion for the back end; this led to its decision to invest and penetrate the front-end semiconductor business,” he notes.

“Construction of a dedicated factory for front-end customers has been completed and the first flexible manufacturing line is targeted to be installed by 2HFY2023, according to GVT,” he adds.

Downside risks, according to the analyst, include a “severe drop in customer orders” on the back of a global recession, as well as higher-than-expected spending for long-term growth.

Meanwhile, potential new customer wins with significant purchase orders and accretive mergers and acquisitions (M&As) which could raise GVT’s revenue for the FY2023 to FY2024 are upside risks.

As at 4.37pm, shares in GVT are trading flat at 52.5 cents.

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CGS-CIMB lowers Grand Venture Tech’s TP to 51 cents as FY2023-FY2025 forecasts reduced

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