Greatech’s 1Q22 results below expectations

KUCHING: Greatech Technology Bhd’s (Greatech) first quarter of 2022 (1Q22) results have come in below expectations as cost overruns from Covid-related subcontracting and a less-than-favourable project mix adversely impacted margins.

Excluding exceptional items amounting to RM3 million, Greatech’s 1Q22 core net profit of RM32.8 million were below the research arm of Maybank Investment Bank Bhd’s (Maybank IB Research) expectations, at just 19 per cent of its and the street’s full year core net profit (CNP) estimates.

According to Maybank IB Research, 1Q22 margins were abnormally impacted from an increase in one-off subcontract charges to third parties as operations were disrupted by a Covid outbreak that affected 66 employees, increased costs as projects billed in the quarter were predominantly fabrication or assembly-related (versus 1Q21/4Q21’s favourable mix of installation/commissioning) and lower unused warranty provisions of just RM1 million (circa RM9 million in 1Q21/4Q21).

“Despite the setbacks, management is still confident of achieving its financial year 2022 (FY22) net profit (NP) margin target of more than 30 per cent as sequential quarters are expected to fare better,” the research arm said.

Looking ahead, Maybank IB Research noted that Greatech’s outstanding orderbook of RM467 million (as of May 9) remains healthy and the group targets to win a further RM461 million for the remainder of FY22.

However, the research arm lowered its FY22E earnings estimates by circa four per cent to account for potential production line systems (PLS) segment revenue loss from further supply chain disruptions (risk is well-flagged) but maintained its forecasts for FY23 to FY24E.

The research arm has also turned cautious on the sector’s valuation premiums given the suppressive effect of the Fed’s aggressive monetary tightening, with its target price of RM5.25 per share now pegged to 32-fold FY23 price earnings ratio (PER), at the long term (LT) mean (from 0.5SD to the Mean).

“Our ‘buy’ rating is maintained as valuations remain undemanding.”