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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 7 May 2021, 9:38 AM

 

Greatech Technology Berhad - More Exciting Times Ahead

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Our recent meeting with Greatech has further reinforced our positive view on the Group’s middle to longer-term prospects. New equipment for the substrate and optics industry that the Group have been developing since its IPO days in 2019 are currently near completion, with beta test expected to start soon and commercialisation to potentially begin in 2HCY21. Greatech has also been refining technologies that could improve the accuracy of its automated equipment, in an attempt to maintain its margins by building higher-end machines. On top of that, we are of the view that Greatech’s reputation as a production line and automated equipment maker for the electric vehicle (EV) battery space is boosted after securing its 4th EV client. We reiterate our Outperform call on Greatech, with an unchanged TP of RM6.80.

  • New technologies in the pipeline. Apart from actively building production lines for its photovoltaic (PV) and EV battery clients, Greatech has also been working on other technologies like submicron fineplacer, subpixel, laser galvo as well as active alignment. These technologies, when incorporated into Greatech’s single automated equipment, can help to improve the precision and accuracy of its equipment, allowing Greatech to build more high-end machines, in a bid to preserve its margins, considering that standard equipment generally fetch lower margins. We also highlight that placement accuracy has become an increasingly important and highly sought after function for equipment, not only limited to the semiconductor industry’s use, but in the automotive industry as well.
  • Substrate and optics. Greatech has also revealed more details on the automated equipment, Product T and Product A that the Group have been developing since 2019. We gather that Product T and Product A will be used in substrate and optics industry respectively, and the development has reached 90-95% completion currently. We expect beta testing for the equipment to begin soon, which should take c. 3 months to complete and expect commercialisation to start in 2H21.
  • New client in the EV space. Recall that Greatech has recently secured its fourth client in the EV space, via its US subsidiary. This marks its US subsidiary’s first purchase order received, since its incorporation 6 months ago. Although the contract value and client’s identity was not revealed, however, we gather that the new customer has been involved in the EV industry for c.8 years now. We also expect the contract value to be relatively lower than that of Lordstown’s, given that the contract is for the supply of battery cell testing equipment, instead of a full battery pack assembly line. Nevertheless, we are still positive on this development, as Greatech has continued to diversify its customer base and we believe this PO would also help boost Greatech’s recognition in the EV space. Note that equipment is expected to be delivered in 8 to 10 weeks’ time.
  • No major concern warranted for its Lordstown orders. Earlier in March, a short-selling firm, Hindenburg Research, has accused Lordstown of creating fictitious orderbook, raising concern on the potential default risk of Lordstown’s orders, totaling to c.RM250m for two battery pack assembly lines. We understand that c.RM80m has been collected as downpayment, while the remaining will be collected progressively in the coming months as Greatech deliver the production lines in stages. We understand that bulk of the equipment will be sent to Lordstown in July, while the remaining is targeted for delivery in September.
  • Expanding beyond Malaysia. The Group has been actively expanding outside of Malaysia, by setting up sales offices in various locations. Its new sales offices in India, Ireland and Switzerland will allow the Group to better capture opportunities in the medical device market and the sales offices are targeted to be ready by 3QFY21.
  • Searching for gems. Greatech is also exploring potential M&As, targeting medium-sized businesses, for the acquisition of technology and also to expand its customer base. We understand that three personnel in its overseas sales offices have been appointed to be on the lookout for potential M&A targets, primarily in the semiconductor, life science and also EV battery space.

Source: PublicInvest Research - 19 Apr 2021

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