Understanding a Manufacturing Solutions Services Provider

• FY2020's revenue surged by 53.22% year-on-year

• Return on Equity (ROE) improved to 14.1% for FY2020

• 2 years of negative free cash flow due to aggresive expansion

• Executive Chairman owns over 35% stake in firm

Founded in 2012, Grand Venture Technology Limited (“Grand Venture”) is a fast-growing solutions and services provider for the manufacture of complex precision machining and sheet metal components and modules. Grand Venture was listed on the Catalist board of Singapore Exchange in 2019.

Its manufacturing plants in Singapore, Penang (Malaysia) and Suzhou (China) are backed by the latest automated computer numerical control (CNC) manufacturing technologies, Class 10,000 cleanroom facilities and a certified quality management system.

Grand Venture’s portfolio of customers derived from the semiconductor, electronics, analytical life sciences, medical and industrial automation industries, and represent some of the largest OEMs in their respective markets.

Evaluating Grand Venture Technology Limited using 4 Financial Metrics

Revenue & Net Profit

For FY2020, Grand Venture’s revenue (Blue Bar) grew by 53.22% year-on-year to S$61.40 million. The higher revenue was driven by growth in both its Semiconductor and Life Sciences, Electronics & Others business segment. However, overall revenue growth was partially offset by a slowdown in the electronics segment following a temporary shutdown of a customer’s facility and supply chain disruptions amid the Covid-19 pandemic.

Despite the minor hiccup, Grand Venture managed to generate a profit after tax (Purple Bar) of S$5.21 million, which represent a year-on-year growth of 68.42%. This was contributed from the higher gross profit achieved and a lower tax expenses due to relevant tax credits.

Management Efficiency Ratio

For the past few financial years, Grand Venture’s Return on Equity (“ROE”) has fluctuated between 9.8% and 29.2%. For FY2020, its ROE came in at 14.1%, which is a 4.3 percentage points improvement from a year earlier due to a higher profit level.

Meanwhile, Grand Venture’s Cost to Revenue has increased to 69.1% in FY2020, as compared to 62.7% in the previous financial year. This was mainly due to expansion in capacity across its facilities during the year, and higher fixed overheads cost incurred despite a temporary halt in its Penang and Suzhou facilities due to the pandemic.

Free Cash Flow

After achieving a positive free cash flow in FY2018, Grand Venture’s free cash flow went into negative territory in FY2019, which amounts to S$7.22 million. This was due to a net cash outflow from its operating activities and partially offset by a slightly lower capital expenditure.

Despite the persistence of negative free cash flow in FY2020 due to Covid-19, Grand Venture managed to lower its negative free cash flow figure to just S$3.46 million. This was mainly contributed from a net cash inflow from its operating activities, but partially offset by higher capital expenditure a year earlier.

Ownership

The single largest shareholder for Grand Venture belongs to Metalbank Singapore Pte Ltd, which has a 31.05% stake in the company.

Mr. Ricky Lee Tiam Nam, who is the Executive Chairman of Grand Venture, is deemed interested in the shares held by Metalbank Singapore Pte Ltd. Coupled with his direct interest of 3.98% in the company, this brings his total shareholding to 35.03% in Grand Venture.

The 2nd largest shareholder for Grand Venture belongs to Novo Tellus Capital Partners Pte Ltd, which has a 29.60% stake in the company. Novo Tellus is a private equity fund based in Singapore renowned for its highly-profitable investments in technology firms such as AEM Holdings and ISDN Holdings.

Conclusion and Prospects

Despite the pandemic, Grand Venture has delivered a good set of financial results for FY2020, which showcased growth in both its topline and bottom line.

However, investors will have to look out for any possible turnaround in the company's negative free cash flow as this could determine a possibility of dividend payout in the future.

In terms of prospects, Grand Venture has highlighted that the macroeconomic landscape is expected to remain difficult, with virus resurgence already leading some countries to re-impose lockdowns.

Notwithstanding this, the company is cautiously optimistic that demand for its services will remain healthy, in view that it is serving customers in the essential industries of semiconductor, medical and life sciences.

Going forward, Grand Venture will continue to remain nimble in addressing challenges and opportunities as they arise, and exercise prudence in the management of its working capital.

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