R e g i o n a l M o r n i n g N o t e s Wednesday, 03 November 2021

COMPANY UPDATE BUY

Greatech Technology (GREATEC MK) (Maintained)
Still Eyeing More Orders; Strong Revenue To Cushion Margin Compression Share Price RM7.20
Greatech continues to secure a sizeable orderbook backlog and expects significant Target Price RM8.30
replenishment from both the renewable energy and EV segments, staying occupied for Upside +15.3%
2022. It is also working on the next alpha growth with automated equipment related to
medical and semiconductor applications as the earnings stabiliser for 2022-23. We
expect the group to achieve 3-year net profit CAGR of 64% in 2022, on a favorable PEG COMPANY DESCRIPTION
ratio of 0.6x. Maintain BUY. Target price: RM8.30. Greatech Technology is primarily a
manufacturer of automated equipment. Its
WHAT’S NEW products range from single automated
equipment up to a production line system
• More details on 3Q21 results. Despite a soft performance in 3Q21 due to COVID-19 which comprises multiple automated
disruptions and delayed delivery by a renewable energy customer, 9M21 earnings still equipment.
soared by 81% on commendable net margin of 36%. This was driven by Production Line
System (PLS) jobs with a high margin nature, mainly from the EV customers (contributed STOCK DATA
69% of total revenue). If not for the rescheduled delivery by the renewable energy customer GICS sector Information Technology
due to the lockdown in Vietnam, Greatech Technology (Greatech) would have raked in Bloomberg ticker: GREATEC MK
additional revenue of around RM30m for the quarter. Note that this order will be delivered in Shares issued (m): 1,252.1
the next four months. Market cap (RMm): 9,015.1
• Significant orderbook replenishment in the pipeline. Note that Greatech’s latest Market cap (US$m): 2,173.0
orderbook stood at RM426m as of 30 Sep 21 (additional RM220m from RM206m as of 9 3-mth avg daily t'over (US$m): 5.5
Aug 21) which mainly consists of: a) PLS orders from First Solar, following its massive Price Performance (%)
expansion plan in Ohio and India, and b) existing EV customers. Management targets to 52-week high/low RM7.50/RM3.93
secure around RM230m worth of orderbook backlog for the remainder of 2021 and is eyeing
1mth 3mth 6mth 1yr YTD
another RM500m in potential jobs in 2022. Additionally, Greatech has also inked the Master
3.6 8.6 19.8 79.6 58.2
Equipment Purchase Agreement recently with First Solar, with the contract lasting until end-
25. All in, we expect the blended jobscope to render >30% net profit margin. Major Shareholders %
Gtech Holdings Sdn Bhd 65.4
• EV and medical segments to anchor growth further in 2022. For EV, recall that Greatech AIA Bhd 3.4
has previously signed a few non-disclosure agreements with a few new EV customers, LLH Holdings Sdn Bhd 2.6
which could warrant more orders (likely PLS) on top of the existing backlog orders. We only
expect contributions from two customers in 2021 and four customers in 2022. Greatech is FY21 NAV/Share (RM) 0.36
still aiming for more than four customers (across EV and energy storage makers), on top of FY21 Net Cash/Share (RM) 0.26
the existing four EV customers. For the highly lucrative medical segment, the group expects
earnings contribution from 2022 onwards. We believe the equipment could relate to high- PRICE CHART
precision assembly. To cater for the robust jobs potential, the group is looking to set up its (lcy)
GREATEC H TE CH NOLOGY BHD
(%)
fourth Batu Kawan plant with a landsize of 11 acres in Penang. 8.00
GREATEC H TE CH NOLOGY BHD/FBM KLCI IN D EX
200

180
7.00

KEY FINANCIALS 6.00

160

Year to 31 Dec (RMm) 2019 2020 2021F 2022F 2023F 140

5.00
Net turnover 216 261 516 710 840 120

EBITDA 63 97 181 272 336 4.00

100
Operating profit 58 91 166 238 293
3.00 80
Net profit (rep./act.) 52 88 160 229 282 30

Net profit (adj.) 52 88 160 229 282 20

Volume (m)

EPS (sen) 4.2 7.0 12.8 18.3 22.5 10

PE (x) 172.4 102.6 56.3 39.3 31.9 0

Nov 20 Jan 21 Mar 21 May 21 Jul 21 Sep 21 Nov 21
P/B (x) 46.1 31.4 20.2 13.3 9.4
EV/EBITDA (x) 138.0 89.8 48.0 31.9 25.8
Source: Bloomberg
Dividend yield (n.a.) n.a. n.a. n.a. n.a. n.a.
Net margin (%) 24.2 33.6 31.1 32.3 33.6 ANALYST(S)
Net debt/(cash) to equity (%) (100.2) (93.1) (72.8) (55.6) (60.2)
Desmond Chong
Interest cover (x) 69.6 103.1 150.9 191.7 174.2
+603 2147 1980
ROE (%) 39.4 36.4 43.7 40.9 34.5
desmondchong@uobkayhian.com
Consensus net profit - - 165 221 263
UOBKH/Consensus (x) - - 0.97 1.04 1.07
Source: Greatech, Bloomberg, UOB Kay Hian

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R e g i o n a l M o r n i n g N o t e s Wednesday, 03 November 2021

STOCK IMPACT REVENUE DRIVERS ASSUMPTIONS

• Clear technology roadmap for the long-term structural trend. We understand that the RMm
800.0
core revenue drivers for 2021-22 will still come from the solar, EV, and life science segments
while for 2023, they will come from the semiconductor segment. For the semiconductor 700.0

segment, two new product developments (substrate and optics application) related to single 600.0

automated equipment (high-value) are 90-95% completed and are still in the beta testing 500.0

phase. The group is already talking to a few sizeable customers for the commercialisation of 400.0

these products in 2022. 300.0

• Yet to fully enjoy explosive growth from EV space. Greatech announced in Apr 21 that it 200.0

had successfully secured the first Purchasing Order (PO) in the US through its subsidiary 100.0

from a new EV customer for equipment for the production of lithium-ion battery cells. This 0.0
marks Greatech’s fourth EV customer and we expect more customers and orders to be 2015 2016 2017 2018 2019 2020 2021F 2022F

secured given its expertise in PLS and equipment. This has further cemented our positive Solar EV Others

outlook for the company as the proxy in the explosive EV battery trend, especially in leading Source: Greatech, UOB Kay Hian
countries such as the US which has high barriers of entry but lucrative and resilient earnings
GROWTH AND MARGIN OUTLOOK
opportunities. We only expect contributions from two customers in 2021 and four customers
in 2022. In terms of earnings sensitivity, assuming RM100m of orders are secured with a RMm NP margin
800.0 40.0%
conservative net profit margin of 32%, the earnings accretion to its FY22 could be at RM32m 700.0 35.0%
(or 14%).
600.0 30.0%

• Door opening opportunities from customers’ collaboration. It was reported that both 500.0 25.0%

Lordstown (Greatech’s main EV customer that is expected to contribute 50% of its FY21 400.0 20.0%

revenue) and Taiwan’s Foxconn group had entered into a US$230m deal, for the latter to 300.0 15.0%

buy Lordstown’s manufacturing facility and stocks. From Greatech perspective, we are net 200.0 10.0%

positive on the deal should it materialise, as this could be a door-opening opportunity for the 100.0 5.0%

group to tap into a wider sea of opportunities beyond EV; with Foxconn being a deep pocket 0.0 0.0%

tech giant with a wide range of high volume and high-end product offerings which require a 2015 2016 2017 2018 2019 2020 2021F 2022F
Revenue Net profit Net profit margin
high level of automation. Note that Foxconn has already: a) launched an open EV platform,
b) inked a manufacturing deal with Fisker Inc, and c) formed a partnership with Thai state- Source: Greatech, UOB Kay Hian
owned conglomerate PTT Pcl to fast track its EV journey. REVENUE BY PRODUCT (2021F)
EARNINGS REVISION/RISK Others 7.3%
• None.
• Key upside risks are: a) higher-than-expected orderbook secured from the RE and EV First Solar
40.3%
battery segments; and b) earlier-than-expected product commencement from the medical
and semiconductor segments.
VALUATION/RECOMMENDATION
• Maintain BUY with an unchanged target price of RM8.30, still based on a 45.0x 2022F EV Battery
52.3% Medical
PE, which implies a PEG ratio of 0.7x (among all the SPE’s PEG range of 0.7x-1.8x based 0.0%
on consensus’ two-year forward earnings and growth expectations). We believe such
Source: Greatech, UOB Kay Hian
valuation is justified given its unique value proposition (strategic exposure in the RE, medical
and EV industries offers better dynamics to weather cyclicality vs peers) as opposed to
peers alongside its robust growth.
• The valuation ascribed is still undermining the growth beyond 2021 which will be anchored
by stable earnings from First Solar and the enormous potential from both the automobile EV
and medical segments. Meanwhile, in terms of earnings up to 2022, a three-year net profit
CAGR of 64% will be anchored by a resilient earnings base, superior growth outlook and its
new business venture, not to mention the unique proposition with the strategic exposure to
the game-changing technologies.
ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) UPDATES
• Environmental
- Its operation and production as a machine manufacturer are generally not energy-
intensive.
- New headquarters include energy-saving features like LED lighting and sensors to
control and minimise the energy usage in the building.
• Social
- Contributed RM1.7m/RM2.9m in cash and in-kind to >25 charities, non-profit
organisations and educational institutions across the region in 2020-21.
• Governance
- The company has in place an anti-bribery and anti-corruption policy. There were zero
whistle-blowing and bribery instances in 2020.

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R e g i o n a l M o r n i n g N o t e s Wednesday, 03 November 2021

PROFIT & LOSS BALANCE SHEET

Year to 31 Dec (RMm) 2020 2021F 2022F 2023F Year to 31 Dec (RMm) 2020 2021F 2022F 2023F
Net turnover 261 516 710 840 Fixed assets 65 127 292 369
EBITDA 97 181 272 336 Other LT assets 30 30 30 30
Deprec. & amort. 6 15 34 43 Cash/ST investment 286 344 394 596
EBIT 91 166 238 293 Other current assets 75 127 166 191
Associate contributions 0 0 0 0 Total assets 455 628 882 1,186
Net interest income/(expense) (1) (1) (1) (2) ST debt 1 1 1 1
Pre-tax profit 90 165 237 291 Other current liabilities 142 155 180 201
Tax (2) (5) (7) (9) LT debt 17 17 17 17
Minorities 0 0 0 0 Other LT liabilities 7 7 7 7
Net profit 88 160 229 282 Shareholders' equity 287 447 676 959
Net profit (adj.) 88 160 229 282 Minority interest 0 0 0 0
Total liabilities & equity 455 628 882 1,186

CASH FLOW KEY METRICS

Year to 31 Dec (RMm) 2020 2021F 2022F 2023F Year to 31 Dec (%) 2020 2021F 2022F 2023F
Operating 103 136 251 323 Profitability
Pre-tax profit 90 165 237 291 EBITDA margin 37.0 35.1 38.3 40.0
Tax (2) (5) (7) (9) Pre-tax margin 34.5 32.0 33.3 34.6
Deprec. & amort. 6 15 34 43 Net margin 33.6 31.1 32.3 33.6
Working capital changes (1) (49) (24) (14) ROA 22.0 29.6 30.4 27.3
Non-cash items 1 1 1 2 ROE 36.4 43.7 40.9 34.5
Other operating cashflows 10 10 10 10
Investing (27) (77) (200) (120) Growth
Capex (growth) (29) (77) (200) (120) Turnover 20.9 97.5 37.7 18.3
Investments 0 0 0 0 EBITDA 53.6 87.3 50.3 23.5
Proceeds from sale of assets 0 0 0 0 Pre-tax profit 56.4 83.3 43.3 23.0
Others 3 0 0 0 Net profit 68.0 82.3 43.3 23.0
Financing (2) (1) (1) (1) Net profit (adj.) 68.0 82.3 43.3 23.0
Dividend payments 0 0 0 0 EPS 68.0 82.3 43.3 23.0
Issue of shares 0 0 0 0
Proceeds from borrowings 0 0 0 0 Leverage
Loan repayment (2) 0 0 0 Debt to total capital 6.1 4.0 2.7 1.9
Others/interest paid 0 (1) (1) (1) Debt to equity 6.5 4.2 2.8 1.9
Net cash inflow (outflow) 75 59 50 202 Net debt/(cash) to equity (93.1) (72.8) (55.6) (60.2)
Beginning cash & cash equivalent 215 286 344 394 Interest cover (x) 103.1 150.9 191.7 174.2
Changes due to forex impact (4) 0 0 0
Ending cash & cash equivalent 286 344 394 596

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R e g i o n a l M o r n i n g N o t e s Wednesday, 03 November 2021

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