"The semiconductor recovery could be gradual and the pace of orders from new front-end customers could be slow in FY2024," says Tng.
Nonetheless, GVT is optimistic that there are some signs of easing of excess inventory and expects order momentum to pick up towards the year end and into the coming FY2024, says Tng.
In addition, GVT maintains that the mid- and long-term outlook of the semiconductor industry is strong, led by growing investment in AI and its applications.
"Hence, GVT continues to grow its capabilities, expand production capacity, and enhance its service offerings to be ready for the next industry uptick," says Tng, adding that the company is making progress to bring on board frontend
semiconductor customers in the metrology, inspection, etch, and wafer deposition segments of the semiconductor industry.
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A new plant dedicated for front-end customers is on track to be ready by the end of the year and production equipment has been installed.
Meanwhile, GVT sees "stable" orders for its other businesses such as life sciences, medical, electronics, and aerospace.
However, Tng prefers to maintain his "reduce" call on the stock, along with a target price of 51 cents. He notes that GVT now trades at 12.5x FY2024 earnings while he values the stock at 11.3x earnings, which is 0.5 standard deviations below its 3-year average given limited visibility of an early recovery.
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Tng warns that possible de-rating catalysts might include a severe drop in customer orders if the world slips into a recession and higher-than-expected spending for long-term growth.
Upside risks, on the other hand, will be potential new customer wins with significant purchase orders and accretive M&As, resulting in better earnings and quicker-than-expected return of customer demand.
