Globetronics Technology Bhd
(March 23, RM4.96)
Maintain buy with a target price (TP) of RM5.75: 2017 marks a major transformation for Globetronics Technology Bhd in our view. With the commercialisation of its light sensor, we project revenue contribution from the sensor business to rise to 59% in the financial year ending Dec 31, 2017 estimates (FY17E) (versus 21% in 2016, or 39% at its peak in 2015). 

Management’s initiative to transform Globetronics into a major player in the sensor business has progressed well aided by the successful development of leading edge products by its Swiss/Austrian customer, which has incidentally also guided for a strong performance this year.

We project a 203% earnings per share growth for FY17E to be underpinned by a new light sensor. While we scale back our volume forecast for the gesture sensor, the higher volumes and average selling prices for the light sensor more than compensates for this. Moving into FY18E, our forecast does not take into account any commercialisation of a new sensor, which we believe is very conservative as there are easily one to two new products under co-development. Any developments in its light emitting diode division could also positively surprise.

We reaffirm our “buy” call and raise our 12-month TP to RM5.75 (from RM4.88).

 We believe the price-earnings ratio (PER) multiples may overshoot in the near term once commercialisation of the light sensor materialises and earnings contribution kick in, as early as the second quarter of 2017 (2Q17). We see this as a near-term catalyst for the stock. Globetronics remains one of our high-conviction picks across Malaysia for its exciting prospects, given its close working relationship with its Swiss/Austrian customer and is poised to benefit from the new model launch by its end customer in 3Q17. 

Its PER valuation (12 times FY18E, down from 18 times FY17E) is also attractive, while fundamentals are sound. — AffinHwang Capital, March 23