Globetronics Technology Bhd
(March 18, RM5.19)
Maintain buy with a higher target price of RM6.28. We expect Globetronics Technology’s sensor business to grow by 45% year-on-year in 2015 on robust demand for proximity sensors, rising contributions from wearable sensors and marginal contributions from imaging sensors. 

By 2016, we estimate that a significant portion, or 57% of group revenue, will be derived from this area compared with 32% in 2014.

The sensor business is lucrative, and as the products replace older products reaching end-of-life status, we expect Globetronics’ earnings before interest, taxes, depreciation and amortisation margins to remain healthy at about 29% despite cost pressures.

We raise our 2016 earnings per share (EPS) by 18% to account for the imaging sensors, which are expected to go into mass production in 2016. 

A multi-die component, the imaging sensor should be a larger contributor than the current proximity sensor, which contributed about RM110 million in revenue in 2014. 

We nevertheless trim our 2015 EPS by 7% as we had anticipated some contribution from this new product. Despite this, we expect solid EPS growth of 23% y-o-y in 2015 before increasing to 49% y-o-y in 2016, driven predominantly by Globetronics’ expansion into the sensor business.

We continue to like Globetronics for its strong growth prospects, forward-looking management — which is driving the group into strategic business areas and expected strong 2015 to 2017 dividend yields of 5% to 8%. — Affin Hwang Capital, March 18

This article first appeared in The Edge Financial Daily, on March 19, 2015.