This article first appeared in The Edge Financial Daily on June 12, 2018

Globetronics Technology Bhd
(June 11, RM2.18)
Maintain buy with a target price (TP) of RM2.36: Globetronics Technology Bhd’s share price fell 9% in the last 15 minutes before market close last Friday. This could be due to news citing sources that Apple’s parts orders for upcoming iPhone models are 20% lower compared with 2017.

This information is not totally new to the market as Taiwan Semiconductor Manufacturing Company Ltd, the world’s largest dedicated independent semiconductor foundry, had already in April slashed its 2018 sales target for premium smartphones, citing softer demand.

Sensor volume production is still up year-on-year (y-o-y). Despite the softer guidance from premium smartphone supply chain players, Globetronics’ sensor volume production will still be up y-o-y in 2018. We believe there will likely be more than one of Globetronics’ end-client upcoming premium smartphone models to feature two light sensors per phone in 2018 (versus only one model in 2017), and gesture sensor production volume is picking up as the end-client would likely bundle wireless headphones with one of the upcoming models.

Volume guidance remains unchanged. Globetronics started to ramp up production of the new-generation light sensor last week. Production volumes for June 2018 to August 2018 at 20 million, 30 million and 40 million units respectively (June 2017 to August 2017: eight million, 11 million and 21 million respectively; December 2017: a peak at 32 million), unchanged from previous guidance.

The sustainability of production volume post the ramp-up period will depend on consumer reception of the new smartphone models.  

We maintain our “buy” call and TP at RM2.36, adjusted for the recent corporate exercise (pre-bonus and pre-split TP: RM5.60), pegged at 14.5 times 2019 price-earnings ratio (PER), or its mean PER. — UOB Kay Hian, June 11