Excluding i) realized gain on foreign exchange (FX) (RM13.8m), ii) share grant expenses (RM1.8m), iii) unrealized FX (RM4.6m), iv) fair value adjustment on derivative assets (RM0.5m) and v) net gain on impairment of contract assets and trade receivables (RM4.6m), Greatech kick started 1QFY24 with core profit of RM20.6m, down 31.3% YoY. The results were below our and the street full-year forecast, making up only 10.5% and 9.5%, respectively. We lowered our FY24-26 earnings forecasts by 7-8% after inputting a more conservative margin assumption. Retain Outperform call with a new TP of RM5.91 after rolling over our valuation to FY25.

• 1QFY24 revenue rose 33.6% YoY. Greatech’s 1QFY24 revenue grewfrom RM113.6m to RM151.8m, due to higher sales from the ProductionLine System under the Life Science and Solar industries. During thequarter, solar and life science sales contributed 43% each while emobility made up 7%.

• 1QFY24 core earnings dropped 31.3% YoY. Stripping out theexceptional items the group’s 1QFY24 core earnings fell from RM30m toRM20.6m. Meanwhile, normalized gross margin without the netwarranty impact slipped from 33.61% to 24.4% due to i) higher projectexpenditure on certain one-off projects, ii) revised plan of projectschedule from a customer in the E-Mobility and iii) higher reversal ofprovision of warranty in prior year.

• Upbeat outlook. As of 20th May 2024, the Group’s orderbook stood atRM1.01bn (vs 20th Feb 2024: RM1.05bn). Out of the RM1.01bnorderbook, 60% comes from solar, followed by the E-Mobility segment,25.5% and Life Science segment,12.1%. For 2024, it has set anorderbook target of RM1.1bn with RM177m already in the bag. Out ofthe RM1.1bn, it targets RM400m each from solar and E-mobilitysegments and RM200m and RM100m from Life Science andSemiconductor Automation, respectively. About 70% of the RM1bnorderbook and 20% of the RM1.1bn orderbook target will be recognizedthis year. E-Mobility segment has experienced a slowdown due toweaker EV outlook. It has submitted various quotations for the batteryand drive unit module and pack production lines. On the positive side, itis bullish on the Life Science segment and is confident to surpass itstarget. It is expected to receive RM80m-90m order for glucosemonitoring equipment. Its Ireland operation is expected to be profitablethis year with plans for expansion. Current PAT margin of 25% couldpotentially expand upon receiving pioneer status. For SemiconAutomation, the wafer fab equipment tools are expected to double to 20-30 units this year. Lastly, it has recently moved into the Batu KawanPlant 4 (for life science, EV and automation) while it has received anoffer to set up Plant 5 in Penang Science Park.

Source: PublicInvest Research - 24 May 2024