Globetronics Technology Bhd
(Sept 29, RM4.70)
Downgrade to “add” with target price of RM5.10: We expect the positive second quarter of financial year 2014 (2QFY14) earnings momentum to continue into 3QFY14. This is largely underpinned by existing business growth from its sensor business and timing devices. These include three key growth drivers: i) commercial production of its LED sensor modules for its Swiss customer, ii) further ramp-up in volume for its proximity sensor by +10% quarter-on-quarter; and iii) higher volume loadings for its quartz crystal timing device by approximately 10% (an additional 10 million to 20 million units per month) to approximately 140 million to 150 million units per month.

We believe Globetronics is on track to deliver another solid set of earnings in FY14, and that its FY15 earnings prospects remain exciting.

Management indicated that there are several developments related to its next generation sensor from its Swiss and US customers, which will likely be launched by early 2015.  Management believes that these value-added sensors are able to drive FY15E earnings for the group.

In view of its exciting growth prospects ahead, we are upgrading our FY15-FY16E earnings by 6%. Our target price is thus raised to RM5.10, based on an unchanged price-earnings ratio of 18 times on FY15E earnings.

As there is now 9% upside potential, we downgrade our rating for Globetronics from “buy” to “add”. We still like Globetronics for its: i) exciting growth prospects of three-year earnings per share compound annual growth rate of 24%, ii) consistent earnings delivery, iii) solid management team to steer the group’s future direction, and iv) still good FY15E dividend yield of 5%. — Affin Hwang Capital, Sept 29

This article first appeared in The Edge Financial Daily, on September 30, 2014.