This article first appeared in The Edge Financial Daily on November 2, 2017
Globetronics Technology Bhd
(Nov 1, RM6.40)
Maintain buy call with an unchanged target price (TP) of RM8 per share: Globetronics’ third quarter financial year 2017 (3QFY17) results were its strongest since 3QFY15 with revenue and profits returning close to peak levels, when revenue from the sensor business was more significant. The 38% quarter-on-quarter (q-o-q) improvement in revenue comes from a further ramp-up of the light sensor, which achieved 30 million units per month in September (7 million units in June). Despite the 118% q-o-q increase in depreciation, earnings jumped 77% q-o-q to RM14 million. Importantly, earnings before interest, taxes, depreciation and amortisation (Ebitda) margin has recovered to 27.8% (+7.1 percentage points [ppts] q-o-q) which was close to the level just prior to the slowdown in the sensor business in 2016. Effective tax rate for 3Q17 has also declined to 10.5%, a reflection of the higher contribution from the sensor business, which enjoys tax incentives.
Cumulatively, nine-month FY17 (9MFY17) core net profit of RM28 million (+24% y-o-y) accounted for 46% and 51% of our and street FY17E estimates. We deem this to be in line with expectations, in anticipation of an even stronger quarter in 4QFY17 amid higher utilisation levels for the light sensor and new capacity coming on stream for both the light and gesture sensors.
The solid set of 3QFY17 results reinforces our strong positive conviction on the stock. Earnings momentum should remain strong in the quarters ahead, on the back of new installed capacity, both for its light and gesture sensors. Looking ahead, we believe that Globetronics should continue to see strong structural earnings growth, as it rides on its solid relationship with its Austrian customer, which has also incidentally guided for a robust quarter ahead.
Maintain our “buy” rating and TP of RM8. Key risks to our call would be a loss of customers or lower-than-expected demand for its end customer’s smartphones. — Affin Hwang Investment Bank Research, Nov 1