They observe that GVT’s customers tend to be stickier, as its products supplied are made to specific specifications.
Within the semiconductor segment, GVT’s exposure to the back-end is about 90% to 95%, implying a 5% to 10% exposure to the front-end. They add that notwithstanding near-term volatility, the semiconductor industry is well poised for growth, owing to the push towards digitalisation.
“McKinsey projects that the semiconductor industry will become a trillion-dollar market by 2030. The long-term semiconductor outlook looks bright, which should benefit GVT, as more than half of its revenue comes from the semiconductor segment.”
While contributions from new front-end customers in FY2024 are expected to remain small, the analysts see meaningful growth in FY2025, with FY2026 contributions expected to be more significant.
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Furthermore, the group was also recently selected to supply parts and components for so-called next-generation thermal compression bonding (TCB) equipment to a leading global semiconductor assembly and packaging equipment manufacturer.
Tan and Ling, noting that GVT’s share price has surged some 47% since December, except a near-term consolidation. “However, we remain positive over the long term with valuations at 14.6 times FY2026 earnings, below one standard deviation (s.d.) of the historical mean.”
Their new target price of $1.04 is based on a price-to-equity ratio (P/E) of 21 times FY2026 earnings, to account for more meaningful volume production for new front-end customers. While there have been no changes to their FY2024 estimates, Tan and Ling have revised their FY2025 topline by 4.6% to account for a higher wallet share of existing backend customers while initiating their FY2026 estimates.
“Despite the top-line raise, we retain our FY2025 earnings estimates, given our lower margin assumptions, attributable to continued investment in capabilities and dual-listing expenses.”
The analysts conclude: “We are of the view that significant opportunities lie ahead as GVT’s foray into the front-end opens up a long runway for growth, particularly in the wafer fab equipment market, which is eight times larger than the backend semiconductor equipment market.”
Key risks noted by the pair include a delay in GVT’s front-end expansion, a prolonged chip glut, and macro weaknesses.
As at 11.21 am, shares in GVT are trading 2.5 cents higher or 3.05% up at 84.5 cents.
