Mainboard-listed Grand Banks Yachts posts strong interim results, upgraded by investment house

SINGAPORE – Luxury yacht-maker Grand Banks Yachts (GBY) posted a net profit of $3.6 million for its first six months of financial year 2022-2023 to end-December, turning around from a loss of $694,000 during the July to December 2021 period.

Analysts noted that the company’s profit margin expanded as the rise in boat prices more than offset cost increases.

The results came on the back of a 49 per cent surge in top-line revenue to $50.2 million for the July-December 2022 period, versus $33.8 million during the same period a year earlier.

Cashflow generated from operations rose to $11.6 million during the first half, compared with $4.1 million a year earlier. Net order book stood at $168.8 million at end-December 2022. Net cash stood at $38 million.

Analysts see the latest results affirming their belief in the company, which had struggled with shutdowns during the Covid-19 pandemic.

Even before the results were announced on Monday evening, investment house Lim & Tan Securities had rated GBY a “buy” with a target price of 50 cents, a 42 per cent upside from its closing price at 35 cents.

Meanwhile, UOB Kay Hian has started covering the mainboard-listed yacht-maker, noting that it recorded a strong post-lockdown recovery during the second half of the financial year ended June 2022 with a net profit of $4.7 million.

Lim & Tan analyst Chan En Jie noted last Friday that GBY is well-positioned to benefit from the buoyant luxury boat market, which has enjoyed strong pandemic-led demand.

The firm is capitalised at around $65 million and sits on a strong net cash position, with annualised profit forecast to average close to $10 million over the next two years, making it an enticing privatisation candidate, he noted.

“Little wonder that in the past two years, substantial shareholders Willimbury and Arminella have bought close to 7.4 million shares between them at 29 cents to 31.5 cents a share, raising their respective stakes to 14.1 per cent and 9.6 per cent,” said Mr Chan.

Willimbury and Arminella are the second- and third-biggest shareholders in GBY, with a total stake of 24 per cent, after Genting Group chairman Lim Kok Thay, who is the biggest shareholder with a 28.5 per cent stake.

Mr Chan also estimated forward dividend yields of 3 per cent to 4.5 per cent, as estimated dividends are expected to triple to 1.5 cents in the next two years.

UOB Kay Hian said in a report that despite the higher inflation and interest rate environment, “demand for GBY’s yachts remains healthy because its main customer group, which consists of high-net-worth individuals, does not need bank financing for its yacht purchases”.

The investment house has not posted a price target or rating on the stock yet. But it noted that GBY is trading at a huge discount of around 50 per cent versus its peers and has a high net cash balance.

“GBY is trading at around 7.9 times FY2022 ex-cash price-to-earnings (PE). This is a discount of around 50 per cent versus its peers’ average FY2022 forecast PE of 15.2 times. The net cash PE for FY22 takes into account GBY’s high net cash position of $31.4 million as at FY2022, equivalent to around 50 per cent of its market cap,” said the UOB Kay Hian report.

Lim & Tan expects margin expansion to accelerate as earnings rebound following on-and-off yard stoppages over the past three years, no thanks to the pandemic.

“We see strong top- and bottom-line growth in 2023 and 2024 as Grand Banks ramps operations back to full speed,” said the report. “Bigger and premium models, improving operational efficiencies and the favourable US dollar/Malaysian ringgit exchange rate will drive margins upwards.”

GBY is headquartered in Singapore and has been listed on the Singapore Exchange mainboard since 1993. It has more than 60 years of experience building luxury recreational motor yachts, now at its manufacturing facility in Malaysia.

Its yachts range between 42ft and 85ft under the Grand Banks, Eastbay and Palm Beach brands. It sells 14 models with indicative prices from US$1 million (S$1.3 million) for the smallest Palm Beach 42 model to about US$9 million for the Grand Banks 85 flagship craft.

The company is led by chief executive Mark Richards, who is a champion sailor and the founder of United States-based Palm Beach Motor Yachts.

The company has increased the base price of its yachts by about 10 per cent to 15 per cent since 2021 to mitigate inflation.

Mr Chan forecasts sales growth of 33 per cent in 2023 and net profit growth of 126 per cent this year.

“Like luxury watches, GBY offers timeless, classic designs that retain old customers and attract new ones,” Mr Chan wrote in the report.

The stock has been trading at around 34.5 to 35 cents in recent days.

GBY has organised a management briefing and site visit to its Johor yard for analysts on Feb 22.