Greatech Technology Berhad (“Greatech”) (KLSE: GREATEC) is a Malaysian automation solutions provider involved in the design, development and production of system, machinery and equipment for its customers’ manufacturing processes. The company also provides value-added services including parts, training and after-sales support.
Since its listing on the ACE Market of Bursa Malaysia on 13 June 2019, Greatech’s share price has appreciated over 800%, from its initial public offering (IPO) price of RM0.61. If you are looking at Greatech with interest, here are 10 things to know before you invest.
1. Business activities
Greatech is a Penang-based factory-automation systems provider and systems integrator. The company offers customers a single-source comprehensive solution from conceptualization, engineering development, prototyping, system integration to installation and commissioning. The company also provides customer training, after-sales service, parts, retrofits and equipment relocation in addition to automating manufacturing processes. As of 31 December 2019, there were a total of 418 employees working for the company, both locally and abroad.
The company operates three plants in Bayan Lepas, Penang comprising of its corporate headquarters, quality control, warehouse and assembly, five manufacturing plants in Lunas, Kedah, comprising of machining, sheet metal fabrication, quality control and warehouse and two assembly plants in Kulim, Kedah. The company’s fabrication plants in Lunas are equipped with state-of-the-art machines, consisting of 5 axis Computer Numerical Control (“CNC”) machining centre, CNC press brake, CNC punching, Waterjet cuttings which enables it to manufacture a wide range of customized precision engineering for metal and plastic parts used in its automation systems. Measurement of these parts is done in its own quality laboratories equipped with the highest-end Coordinate Measuring Machine (“CMM”).
2. Business segments and principal markets
Greatech’s products range from single automated equipment (SAE) up to production line systems (PLS) customized to the requirements and specification of customers. A SAE is used to perform one or more functions in a piece of single equipment while a PLS is a self-contained system comprising multiple automated equipments to perform a series of tasks. Meanwhile, the company also provides parts and services, mainly for its own manufactured equipment.
For the SAE business segment, the company’s range of automated equipment caters to customers in the solar, semiconductor and consumer electronic sectors. They include i) material handling equipment (e.g. to handle solar wafer and semiconductor wafer respectively during the manufacturing of solar cell and fan-out wafer level package), ii) assembly equipment and iii) inspection and measurement equipment.
As for the PLS business segment, the company is focused on the solar sector. Its expansion into the area began in 2017 when it installed production line systems for the manufacturing of solar modules for First Solar, Inc. (NASDAQ: FSLR) group of companies’ plants in the U.S. Vietnam, and Malaysia.
For the financial year ended 31 December 2019, PLS represents the largest business segment, contributing revenue of RM189.9 million; Provision of Parts & Services represents the second largest business segment, contribution revenue of RM17.3 million; while SAE represents the smallest business segment, contributing revenue of RM8.7 million.
Geographically, the majority of Greatech’s products and services are exported overseas to countries such as the U.S., Vietnam, Philippines, Ireland, etc. For the financial year ended 31 December 2019, export sales contributed 94.3% of total revenue at RM203.7 million, with the U.S. being the main export country at 70.9% of total revenue at RM153.2 million.
3. Major customer dependency
Greatech develops customized equipment and systems for customers in solar, semiconductors, consumer electronics, medical devices and energy storage industry.
Its solar division delivers automation systems to leading global manufacturers of crystalline solar cells and thin-film solar modules. Other areas of business include the semiconductors and consumer electronics industry, where the company mainly serves leading global customers that are manufacturers of smart devices, computers and computer peripherals.
Leveraging its core expertise in design and build, it ventured into a different growing market that is medical device and energy storage. In the medical device market, the company started to automate a production system for a notable surgical instrumentation manufacturer. In the energy storage market, it generated its first revenues in the automated handling system for battery cells for a global manufacturer of electric cars.
Greatech’s marquee customers include Arizona-headquartered First Solar, which makes solar energy systems; Lordstown Motors, a manufacturer of electric pick-up trucks in Ohio; and Panasonic Japan, for their existing/ new electric vehicle batteries.
Investors should be mindful that revenue from two major customers represented over 79.1% and 89.8% of total company revenue for the financial years ended 31 December 2018 and 31 December 2019 respectively. One needs to be comfortable with the high customer concentration risk.
(Source: 2019 annual report)
4. How are the IPO proceeds used
Greatech intends to use the IPO proceeds raised of RM73.0 million as follows:
- RM18.0 million or 24.6% is earmarked for business expansion and development, marketing activities;
- RM5.0 million or 6.9% is for capital expenditure;
- RM5.0 million or 6.9% is for R&D expenditure;
- RM36.5 million or 50.0% is to be used as working capital;
- RM4.5 million or 6.2% is used for the repayment of bank borrowings; and lastly
- RM4.0 million or 5.4% is to fund listing expenses.
5. Business strategies
Greatech’s business strategies are set out below:
- Business expansion and development
(i) The company intends to establish an office in Silicon Valley, California to provide engineering sales and service support to its existing and new customers in the semiconductor and consumer electronics sectors.
(ii) It plans to carry out proactive marketing activities by participating in more exhibitions for the consumer electronics and semiconductor sectors and battery segment for the automotive applications.
- Establishing new operational facilities – The company intends to establish new operational facilities for continuing business expansion in providing automated equipment to existing and new customers in the solar, semiconductor and consumer electronic sectors as well as new industry sectors such as battery segment for the automotive applications.
- Focusing on product development and expansion – Some new products in the pipeline include a production line system for the assembly of battery modules and pack, loading and unloading equipment to handle solar wafer, and loading and unloading equipment to handle semiconductor panel substrate.
6. Industry outlook and growth prospects
As Greatech’s principal customer is FLSR, and its automated equipment is used in the manufacture of solar cells and solar modules, the demand of the company’s products will be dependent on the prospects of the solar industry.
According to the industry analysis prepared by Vital Factor Consulting available in the company’s IPO prospectus, the global production of solar cell and solar module both recorded compounded annual growth rate (CAGR) of 27.4% respectively between 2013 and 2017. In 2017, Malaysia was the third-largest producer of solar cells and solar modules in the world, which accounted for 7% and 6% of the total global production in terms of gigawatt (GW) respectively.
The increase in the production of solar cells and solar modules indicates continuing demand for these types of products, therefore creating opportunities for manufacturers of industrial automation systems that are used in the production of solar cells and solar modules.
7. Substantial shareholders
(Source: 2019 annual report)
Mr. Tan Eng Kee, co-founder and CEO of Greatech, is the largest shareholder of the company, with an equity stake of 74.0%. As shares of the company have jumped significantly in the past year, this has propelled Mr. Tan into the billionaires’ club with a net worth of just over RM5.0 billion.
Mr. Tan and Mr. Khor Lean Heng, COO of Greatech, both founded the company in 1998. Both bring over 20 years of experience in industrial automation. They are backed by a management team which has an executive track record in industrial automation. In fact, the second largest shareholder of Greatech is LLH Holdings Sdn Bhd, which is held by Ms. Koay Lin Lin, Mr. Lee Chong Li and Mr. Lee Hong Wah with an equity interest of 50.0%, 25.0% and 25.0% respectively. Ms. Koay Lin Lin, is the CFO of the company, while Mr. Lee Chong Li and Mr. Lee Hong Wah are also employees of the company.
8. Financial Highlights
|Financial Year End|
|Profit after tax||5,598||5,809||19,056||31,719||52,297|
|Gross profit margin (%)||39.72||52.30||35.91||20.60||33.74|
|Profit after tax margin (%)||26.17||25.59||20.29||14.45||24.22|
|Current ratio (times)||1.97||3.33||1.41||1.54||2.22|
(Source: IPO prospectus and 2019 annual report)
Greatech is a fast-growing and profitable company. Its revenue and profits have been growing at CAGR of 78.2% and 74.8% respectively over 2015 to 2019. Meanwhile, its profit after tax margins has been consistently above 15.0% over the same period. The company should not have any liquidity issues, since its gearing ratio is kept low, below 0.5x. Its current ratio is also consistently above 1.0x, meaning that its current assets can sufficiently cover its current liabilities.
9. Current valuation
With a closing share price of RM5.71 as at 15 January 2021, Greatech is trading at a price to earnings (PE) ratio of 94.9, with a market capitalization close to RM7.2 billion. The stock has gained a lot of attention due to its exposure to renewable energy and electric vehicles. However, investors need to be mindful that at current valuation, the stock is priced for perfection, and may correct if growth expectations are not met.
(Source: Google Finance)