Globetronics Technology Bhd
(Oct 30, RM2.10)
Maintain sell with a higher target price (TP) of RM1.82: Globetronics Technology Bhd’s third quarter of financial year 2019 (3QFY19) normalised earnings declined by 21.3% year-on-year (y-o-y) to RM18.2 million, mainly attributable to lower volume loading of products from certain customers of the group. Note that its 3QFY19 revenue dipped by 24.4% y-o-y to RM66.3 million as sales in the Southeast Asian and North American market segments reduced further.
Cumulatively, nine months (9M) of FY19 normalised earnings amounted to RM29.3 million, a contraction of 38.8% y-o-y, mainly due to: i) the phasing out of certain matured products of a Japanese customer; and ii) lower capacity utilisation and volatile volume loading of certain products, especially in the first half (1H). All in, the group’s 9MFY19 performance came in within our expectations but below the consensus, accounting for 60% and 52.9% of full FY19 earnings estimates respectively.
We revise our TP to RM1.82 from RM1.47. While we keep our FY19 and FY20 earnings estimates unchanged, we increase our terminal growth forecast for the group to 4.5% from 4%. The revision corresponds with positive developments in the US-China trade war as well as the group’s effort to diversify away from the smartphone market.
Soft volume loading continued to negatively impact the group’s well-being as seen in its 1HFY19 performance. While we expect some earnings recovery for 2HFY19, we opine that it would be insufficient to make up for the underperformance for 1HFY19. Though we acknowledge the group’s effort to diversify, we are of the view that meaningful contributions to its bottom line would only be seen from the later part of FY20. Given the poor near-term outlook, we expect its share price to come under great pressure. Moreover, we believe the estimated dividend yield of below 4% is unable to make up for the anticipated retracing of its share price. With all factors considered, we maintain our “sell” recommendation. — MIDF Research, Oct 30