Best is yet to come, says cash-rich GREATEC (0208): GREATECH TECHNOLOGY BERHAD
CASH-RICH Greatech Technology Bhd, whose latest first-quarter sales surged by over 80% year-on-year, believes that the best is yet to come.
With over two decades of experience in automating factories globally, the Penang-based company has set out plans to grow its footprint even further by acquiring new companies, boosting production capacity and expanding the range of its product offerings.
The group, which has been highly-reliant on the solar industry for orders, also wants to widen its revenue base by increasing its presence in other product segments such as semiconductors and sensors as well as life sciences.
A quick check on its 2020 annual report showed that over 95% of its topline were contributed by only three clients. In fact, almost 61% of total revenue is attributed to one undisclosed client.
Hence, it is unsurprising that Greatech seeks to widen its revenue base, considering the need to minimise the risk of relying on very few customers.
In the near future, Greatech expects its electric vehicle (EV) energy storage segment to be a major contributor to revenue, potentially overtaking the solar segment. This, however, does not mean that the contribution from the solar segment will begin to reduce.
Over the next two years, Greatech executive director and CEO Tan Eng Kee foresees the EV energy storage and solar segments to remain strong.
“Based on current global development, we believe the renewable energy segment will have a bigger potential growth for Greatech, especially in the EV energy storage segment as this is an emerging technology and market,” he tells StarBizWeek.
Earlier this month, concerns emerged on the group’s EV energy storage business, after one of its largest customers – Lordstown Motor Corp – was reported to have been facing cash constraints to commence full commercial production.
However, in a reply to StarBiz earlier, Tan described the issue as “small and manageable” and said that Greatech expects to continue doing business with the US-based electric pick-up truck start-up Lordstown Motor.
Tan added that Greatech’s contract with Lordstown Motor would expire in September and it is expected to be renewed in one or two months.
“They (Lordstown) have said that their business will continue amid the latest developments, ” he said.
PublicInvest Research, in a note on July 11, also said it was not “overly concerned” on Greatech’s payment collection from Lordstown, as Greatech had managed to collect an additional RM80mil from the buyer within three months.
Meanwhile, the recent newsflow about US-based solar panel maker First Solar Inc planning to invest US$680mil (RM2.8bil) in a new factory in Ohio is also expected to benefit Greatech, says Tan.
First Solar is a major client for Greatech. Although the group has declined to disclose revenue contributions from First Solar, it is noteworthy that Greatech has a long-standing relationship with the company and in the financial year 2018 (FY18), First Solar group of companies accounted for almost 88% of Greatech’s revenue, based on its listing prospectus.“Ongoing discussion with First Solar for the new plant in Ohio is actively taking place.
“We are not able to comment much on this at the moment pending the finalisation of the deal with the customer,” he adds.
First Solar’s new Ohio plant is expected to have a capacity to produce up to 3GW worth of solar panels annually, with target completion of the plant in early-2023.
Tan points out that the group’s order book value stood at RM293mil as of April 9, and this is expected to provide earnings visibility until the first half of 2022.
Supported by the continued growth in the EV energy storage and solar segments, Tan expects 2023 to be the “best year for Greatech”.
Tan is the single largest shareholder with an equity interest of 68% in Greatech. Along with Khor Lean Heng, who is Greatech’s executive director and chief operating officer, Tan established the group back in 1997.
Guided by three-year plan
Looking ahead, Tan says that Greatech has established a “three-year plan” to diversify into other segments.
Following this, the group has also embarked on increased spending for research and development (R&D) efforts to expand its product range.
In the financial year of 2020 (FY20), the group has spent about RM9.3mil for R&D, and as for the current FY21, it has allocated about RM12mil.
Backed by its strong cash position, Greatech says that it is actively looking to acquire strategic fit foreign companies as it seeks to expand its market presence internationally. Tan points out that the companies would likely be in the life sciences and the EV energy storage segments.
As of end-March 2021, the group’s cash and cash equivalents stood at RM312.82mil, against total borrowings of just RM18.27mil.
Emphasis on research and development
“Additionally, Greatech is also actively involved in development of new products in emerging markets whereby we foresee the R&D cost will increase year over year.
“The group has allocated internally generated funds of RM77mil for capital expenditure in FY21, of which RM50mil is allocated for land and construction of new facility in Batu Kawan, Penang while the remaining balance of RM27mil is for the investment of machinery, equipment and information technology.
“The group is currently assessing the capacity of the existing plants and may utilise its cash position to increase and accelerate the assembly capacity and the investment of machinery for fabrication capacity,” says Tan.For a high-growth company like Greatech, Tan says its biggest challenge is talent development, where a large team of engineers is required to implement the group’s “three-year plan”.
“Hence, the group has established the Young Engineering Programme (YEP) to train and develop the graduate engineers as a measure to build a capable and focus-driven talent pool for the group,” he points out.
Commenting on Greatech’s financial performance outlook, Tan strongly believes that FY21 will be a “positive and strong” year for the group.
Greatech began its FY21 on a strong footing after its first quarter ended March 31 reported a 80.4% increase in revenue to RM95.14mil, as compared to RM52.74mil a year earlier.
The increase was mainly attributable to the higher revenue recognised for production line systems supplied to the electric vehicle (EV) energy storage industry.
Meanwhile, the net profit in the first quarter surged by 2.5 times year-on-year to RM46.62mil.
The stronger bottomline was mainly due to the increased reversal of unused provision for warranties of RM8.49mil made in the prior years as well as the favourable gross margin mix benefits realised from engineering design works.
Greatech reported a 51.9% gross profit margin for the first quarter ended March 31.
“Excluding the effects of net reversal of unused provision for warranties of RM5.23mil and net provision for warranties of RM2.90mil, the normalised gross profit margin would be 46.41% and 45.17% for this quarter and prior year corresponding quarter respectively,” the group said earlier in its results filing.
Greatech’s initial public offering in June 2019 was one of the best-performing liftings on Bursa Malaysia in recent years. In a span of two years, from an offer price of just 61 sen, the stock has risen to RM5.64 per share as of yesterday.