Stripping out the FX gains (RM15.6m) and net gains on impairment of trade receivables and contract assets (RM1m), Greatech’s core earnings rose 20% YoY to RM51.7m. Nevertheless, the results were below our and the street full-year expectations, making up only 30% and 27%, respectively. Despite falling short of expectations, we make no changes to our earnings forecasts as we expect to see improving results in the second half when it starts delivering its shipments for solar segment. Maintain Neutral call with an unchanged TP of RM5.03 based on PER of 33x FY24 EPS. No dividend was declared for the quarter. The key downside risk to our call is discontinuation of its pioneer status (subject to effective tax rate of 14%), which could potentially lead to 9-14% cut in our earnings forecasts for FY23-25F.

• 2QFY23 topline jumped 40% YoY. Greatech’s 2QFY23 revenue surged from RM118m to RM166m, led by stronger sales contribution from the Production Line System particularly in the life science and solar segments. Solar segment dominated the sales, accounting for 74%, followed by E-Mobility (15%) and Life Sciences (10%).

• 2QFY23 core earnings rose 12% YoY to RM18.6m. Stripping out the net gains on impairment of trader receivables and contract assets (RM1.8m) and net gain on foreign exchange (RM17.9m), the Group’s 2QFY23 core earnings improved from RM16.6m to RM18.6m. Meanwhile, the normalized gross margin slipped from 24.2% to 22.8%. The weaker margin was mainly dragged by higher employee compensation and benefit expenses from increased employee headcounts as well as Long-Term Incentive Plan expense of RM3.7m. It is worth noting that there is a corporate tax expense of RM5.1m incurred during the quarter following the expiry of pioneer status.

• Outlook. As of 18th Aug 2023, the Group’s orderbook stood at RM610m (vs 2th May 2023: RM650m) with 59.3% coming from solar segment, 23.8% from E-Mobility segment and 15.7% from Life Science segment. It is targeting another RM647m orderbook this year, supported by i) solar (RM360m), ii) E-Mobility (RM213m), iii) Life Science (RM28m) and iv) Semiconductor (RM46m). Management remains confident that it could achieve stronger sales growth with improved margins when it starts delivering its shipments for solar segment. Meanwhile, the results of its pioneer status renewal for solar segment will be known by 2nd week of Sept. Management has also guided that it has no plans to proceed with any fund-raising exercise for M&A acquisition in the near term. Lastly, management has also set an orderbook target of 25% coming from each segment, namely, i) solar, ii) E-Mobility and iii) Life Science.

Source: PublicInvest Research - 28 Aug 2023