6 Highlights From Greatech’s Latest Quarterly Earnings and Recent Corporate Developments

It was not too long ago I did a deep dive into Greatech Technology Berhad (KLSE: GREATEC). The group had gained a lot of attention due to its exposure to renewable energy and electric vehicles. 

Fast forward to today, Greatech has announced a blowout set of earnings for its fiscal 2021’s first quarter (1Q2021). Its net profit surged by 152.3% year on year to RM46.6 million as customers’ demand for automated equipment remained strong despite the Covid-19 pandemic. 

Here are 6 other interesting facts about the group’s latest earnings and recent corporate developments that investors should know about.

1. Q1 revenue swelled to RM95.1 million

For the quarter ended 31 March 2021, the group’s revenue swelled by 80.4% or RM42.4 million higher than that of the prior year corresponding quarter. The increase was mainly attributable to the higher revenue recognised for the production line systems (“PLS”) in the electric vehicle energy storage (“EV energy storage”) industry. 

The group also commented that the production of equipment for the EV energy storage is active and a few equipment have been successfully delivered to its customers. As of 9 April 2021, the group’s order book stood at RM293.0 million, which is expected to last until first half of 2022. 

2. Higher profit before tax (“PBT”) of RM47.0 million 

The group’s PBT for the quarter ended 31 March 2021 was RM47.0 million or 49.4% of revenue, an increase of RM28.2 million or 150.1% as compared to the prior year corresponding quarter. The increase in PBT was driven primarily by the increase in gross profit of RM28.5 million, higher other income of RM3.3 million, offset by increase in administrative and marketing expenses of RM3.5 million. 

The increase in gross profit was mainly due to the increased reversal of unused provision for warranties of RM8.5 million made in the prior years as well as the favourable gross margin mix benefits realised from engineering design works. 

Separately, other income increased significantly due to the increase in unrealised foreign exchange gain of RM4.0 million recorded as a result of favourable impact of currency translation, partially offset by lower dividend income from investments in short term fund and lower interest income from depositions with banks of RM0.8 million. 

Meanwhile, the increase in administrative and marketing expenses was mainly due to the increase in number of employees in its Research and Development division, and its operations locally and abroad. 

3. One-for-one bonus issue

Greatech had in January 2021 completed a one-to-one bonus issue. The bonus issue expanded its issued share capital to 1.25 billion shares, from its previous 626 million shares. With the increase in number of outstanding shares and lower stock price, the bonus issue will make the stock more affordable for retail investors. 

4. Construction of additional factory

The group had in March 2021 announced the construction of its second factory building at Batu Kawan Industrial Park through its wholly-owned subsidiary, Greatech Integration (M) Sdn Bhd, to exploit growth opportunities and solidify the operations of the group. 

The building is to be erected on the 5.9 acres of vacant leasehold land, and has an approximate build-up area of 230,000 square feet, comprising a double storey detached office block and an annexed single storey factory building, to cater for the designing, assembly and administrative functions. 

5. First purchase order (“PO”) for its US subsidiary 

Greatech had in October 2020 announced the incorporation of a new wholly-owned subsidiary, Greatech Integration (USA) Inc. to design, develop and produce systems, machinery and equipment and related components and provide engineering services. In December 2020, the subsidiary has secured a leased facility in Michigan, USA with a combined space of approximately 16,000 square feet. In Mid-February 2021, the team has moved into the facility.

6 months since the incorporation, the US subsidiary has successfully secured its first from a new EV customer for equipment for the production of lithium-ion battery cells. The group is encouraged by the new order, and believes that this demonstrates that customers have confidence in its technology, quality and reliability of its high-tech equipment. 

6. Strategic partnership with Atlis Motor Vehicles, Inc. (“ATLIS”)

Greatech had in February 2021 announced a strategic partnership with ATLIS, a start-up mobility technology company through the group’s wholly owned US subsidiary, Greatech Integration (USA) Inc. to assist ATLIS to develop and electric vehicle battery pack assembly production line at its headquarters in Arizona, USA.   

ATLIS is developing a fully electric vehicle platform, proprietary battery cells and packs, and the necessary charging infrastructure to recharge a 500-mile range battery in less than 15 minutes. Currently, ATLIS is nearing the advance stage of its battery pack development that meet all necessary specifications and intends to move to small-scale production. 

Greatech will serve as ATLIS’s strategic partner for comprehensive batter pack assembly production line and will supply all parts, equipment, and machinery required to form ATLIS’s limited-run prototype battery pack assembly line. If the prototype lines meet ATLIS’s performance and quality expectations, Greatech will explore the development of high-volume lines designed to produce thousands of packs per month. 

The above strategic partnership arrangement with ATLIS commenced from 1 February 2021 (“Effective Date”) and shall be effective for an initial term of 3 years from the Effective Date (“Initial Term”). Upon the expiration of the Initial Term, both parties may mutually agree upon extension of 2 additional terms of 1 year each. Early termination is allowed by mutual agreement in 30 days of written notice. 

Contingent upon raising sufficient capital and funding to purchase the equipment, ATLIS agrees to engage Greatech as the sole equipment supplier for its prototype battery pack assembly line at ATLIS’s headquarters. 

In summary: strong start to 2021

Despite the unpredictable and challenging macroeconomic environment influenced by Covid-19, the group made a strong beginning in 2021. 

Given commitment from the US government and other global policy makers to support decarbonisation of environment, it will drive rapid investment in renewable electricity generation, development of battery technology and the use of electric vehicles across the industry and consumer markets. 

As a group that develops and supplies automation equipment, Greatech believes it is well placed to benefit from these market dynamics. 

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