(09-09-2023, 08:46 PM)dreamybear Wrote: (09-09-2023, 02:27 PM)weijian Wrote: The executive team and founders of GVT are ex-Frencken and ex-UMS Holdings. This is one of those smaller precision parts and contract manufacturers on SGX, compared to the other more established and bigger ones like Venture, Frencken and UMS.
I wonder what is their intent of forming GVT and their aspiration for GVT ? Fill a significant business need not covered by UMS/Frencken ? Outdo UMS/Frencken one day ? Fulfill business objectives they did not manage to in their previous companies ?
Obviously, I am no expert in this field, having bought Fuyu (fortunately just a tiny stake) before VB Big Toe's sharing on its "competitive disadvantage". ( https://www.valuebuddies.com/thread-3213...#pid168178 ) *lesson learnt*
Let me try to expand a little bit more in detail.
(A) I think Penang already has critical mass for precision mfg to support the various semiconductor/aerospace/analytical/automotive/industrial sectors. With a stable (state) government that "resembles" that in Spore and a cheap currency (costs in MYR, products priced in USD/EURO), the stars may be aligned. So rather than asking if GVT has a moat, the question is whether Penang has a moat or not to catch the OEM outsourcing trend. This is in view of macro trends like US-Sino trade war and higher interest rates, where the latter will keep Msia (or Penang) cost competitive. The base scenario is that there is a blue ocean, and the pie is big enough for everyone.
(B) Anecdotally, I know a Msian precision mfg SME owner who is currently enthusiastically attending trade shows/seminars in China to get more business - This anecdotal evidence suggests to me that there is some time before China catches up. Of course, China always catches up
one day. Will the pie be big enough for everyone to share, or differentiated enough in view of this deglobalization trend?
( C) Now a little bit back to GVT. GVT has a good flow chart in all their powerpoints, that helps OPMIs to understand how the value chain works:
Stage1. Design In (lowest value, everyone can do)
Stage2. Component Parts
Stage3. Sub Assembly
Stage4. Advanced materials
Stage5. Consumables/services (highest value, best margins)
Stage2. Component Parts This is the main bulk of GVT's revenue. When one starts out, it is probably always at this stage as one gains more capabilities along the way. The margins are generally better than "Sub Assembly" due to the high mix/low volume nature, but less sticky in terms of retaining the customer account. There are tens of thousands of unique parts towards building a final product/equipment and so no one can carry them all. As such, there is also subcontracting between the subcontractors. Eg. SAM Engineering Sdn Bhd, itself a precision part mfger, is a customer of GVT (named in IPO).
Stage3. Sub Assembly This portion is probably where UMS/Frencken are already well entrenched in, especially for semiconductor equipment. The margins are lower but more sticky. By doing assembly/sub assembly work, you handle the thousands of part sourcing yourself and save your customer (the equipment producers like AMAT and ASML) some headaches. Then your end customer can put their focus on R&D and selling to the wafer fab owners. As such, the more parts and services one provides, the bigger (and more sticky) wallet share from customer as you are able to simplify their supply chain. If we follow Frencken's progress over the last 5 years, we can see that they are focusing more on this portion of the value chain (eg. upgrading their cleanrooms from class 10k to class1000) by assembling more of the final equipment. So, this might actually open up for GVT to step in and provide more component parts (stage2) and to the backend semiconductor sector which has a lower TAM than frontend. Of course, we can also see GVT starting to go into this stage3 since ~2021 but I suspect it is going to be a long road ahead because the barriers much higher than component parts.
Stage5. Consumables/services This is where VB's fav stock MicroMechanics is in (at least for its supply of parts to backend OSAT). We just need to look at MicroMechanics's margins to know how profitable it is. The parts are changed every shift (12 hours). It can't fail because unexpected failure means the equipment has to be unscheduled stopped for troubleshooting, messing up the movement of dies down the assembly line. So no one is going to risk changing their qualified parts, which is of low cost compared to the amount of dies going through the production line and the capital spending of those equipment enabling it.
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