This article first appeared in The Edge Financial Daily on January 17, 2020

Globetronics Technology Bhd
(Jan 16, RM2.44)
Maintain hold with a higher target price of RM2.52: Globetronics Technology Bhd will start 2020 on a positive note with a new sensor product for a wearable device. Commercial production also commences for an environment gas sensor for a new German customer. Including capacity upgrades for its gesture sensor, we think that the sensor division will be kept relatively busy in 2020.

Growth for the laser headlight module assembly business has pretty much been constrained by its customer’s wafer supply in 2019. With this issue addressed, prospects for the business expected to double for the estimated financial year ending Dec 31, 2020 (FY20E) (albeit off a low base) looks plausible.

We project a revised earnings per share (EPS) growth of 46% for 2020 after a 14% cut in our FY19E EPS. Despite building in preliminary revenue and profit contributions from the gas sensor into our FY20-21E EPS forecasts, we have also cut the contribution from the timing device business, expecting this to phase off by second half of 2021.

The stock is currently trading at a forward price-earnings ratio (PER) of 23 times, slightly above its five-year mean of 20 times. The shares traded as high as 32 times in August 2018, in a year for which the company recorded an equally strong net profit growth of 37%. In our view, PER valuations may overshoot in the near term, but we think that any sustainable PER expansion will likely only be accompanied by sustained earnings growth going into 2021. This can only be achieved with new products with large volumes. — Affin Hwang Capital, Jan 16