Going on an M&A spree to lay foundation for growth
From a quiet IPO in January 2019, precision manufacturing firm Grand Venture Technology (GVT) has gone from an IPO price of 27.5 cents to a closing price of 99 cents on Jan 24, marking an over three-fold increase in capital gains for investors who bought its IPO shares at the time of its listing.
The company had a quiet 2019 and 2020, with the share price not going far from its IPO price. However, things changed after an investment of almost $30 million by private equity fund Novo Tellus in January 2021.
With its war chest further beefed up with a $28.5 million share placement in September 2021, GVT has gone on an acquisition spree, spending some $24.4 million to acquire two other companies with complementary capabilities as well as additional land adjacent to its existing facilities so that it can build up its capacity to take on more work for new customers.
The first company acquired, J-Dragon designs and makes parts, modules and tooling for the aerospace, medical and semiconductor industries. This acquisition will give GVT access to its patents, know-how and R&D capabilities, and also broaden GVT’s moves into the aerospace and medical business segments.
Formach, the second acquisition, makes sheet metal and provides welding and electro-mechanical machine assembly services. With its 90,000 sq ft plant in Johor, Formach is expected to supplement GVT’s manufacturing nodes and support its existing capacity in Singapore. Basically, acquiring Formach speeds up GVT’s growth than if it were to rely on organic growth, says GVT CEO Julian Ng in a recent interview with The Edge Singapore.
The newly acquired land in Penang, meanwhile, can let GVT create a combined facility with more space to meet all kinds of demands from its customers. In other words, what its management calls a “one-stop solution”.
The acquisitions will help GVT diversify its customer base to other areas such as life sciences and aerospace, instead of relying heavily on semiconductors. “Today, everybody is just very dependent on semiconductors and everybody wants to ride on the trend,” says Ng. “We’ll just stick to our original strategy: to build a company that is going to last through good and bad times,” he adds.
Some investors may think they have missed the boat, given the run-up in GVT’s share price. However, according to CGS-CIMB analyst William Tng in a Jan 4 note, he expects further M&A activity in the current FY2022, which will help add more capacity, bring in new customers and penetrate new markets.
To this end, Tng, who has a “buy” call and a $1.74 target price for GVT, is raising his EPS estimate by between 4% and 5% for FY2022 and FY2023 to 9 cents and 11 cents respectively.
“We think GVT remains committed to growth and there are plans to work towards securing customers involved in the front end of the semiconductor industry,” Tng adds in a later note on Jan 12, pointing out that the company has also established relationships with more banks.
This means there are additional funding options for GVT if suitable M&A opportunities arise and that GVT will target a debt-to-equity ratio of 1.5 times in managing its gearing.
Moving forward, he believes GVT will work towards providing its own proprietary module solutions to further cement its competitive position with customers and improve margins.