KUALA LUMPUR (June 10): Mercury Securities Sdn Bhd has initiated coverage on Greatech Technology Bhd at RM3.88 with a “buy” rating and target price (TP) of RM4.73, and said following a supply chain shortage of components and labour shortage in 1QFY22 that affected its earnings growth, Greatech is back on track to resume its earnings growth from 2QFY22 onwards, giving earnings growth rates of 28.2% in FY12/22E and 10.1% in FY12/23F.

In a note on Friday (June 10), the research house said that with the stock plummeting from a high of RM7.60, it would be an opportune time to initiate coverage of the stock at a TP of RM4.73 with FY12/23 PE of 32 times, supported by good earnings growth and a diversified targeted order book of RM500 million in FY12/22.

Mercury said the greatest strength of Greatech lies in its diversified order book in key growth industries, namely solar, e-mobility, and life sciences.

It said Greatech is targeting a RM500 million order book in FY12/22 against RM586 million achieved last year, around RM300 million from electric vehicle (EV), RM100 million for solar, and RM100 million for life science.

“Order book for solar will continue to slide from last year as only RM160 million solar contract is left to be delivered.

“Greatech is gearing up efforts to win four new clients in EV battery production and an additional three in EV components production such as inverters and chargers.

“We believe Rivian is likely to be the next EV customer for Greatech,” it said.  

Mercury said prospects for Greatech are bright as Amazon has contracted Rivian to produce 100,000 units of electric delivery vans by 2030 with the first 10,000 hitting the road in 2022.

“Meanwhile, Greatech is targeting another five other customers after signing a master service agreement with a US-based life science company.

“All projects are expected to achieve a minimal gross profit margin of 30%,” it said.

Mercury said since Greatech has an estimated order book of RM500 million compared to RM300 million of Genetec Technology Bhd, it assigned Greatech a higher P/E of 32 times against 30 times for Genetec, giving a TP of RM4.73.

“Key risks to our earnings forecast include material supply chain disruption, slower-than-expected contract flows, and hiccups in the expansion plan,” it said.

At 10.02am, Greatech fell 2.33% or nine sen to RM3.77 with 252,700 shares traded.