Globetronics Technology (Oct 14, RM4.02)
Maintain buy with target price of RM5.45: Globetronics Technology Bhd (GTB) started its business by providing burn-in and visual check services before moving into production of integrated circuits (IC). At present, the bulk of its business revolves mainly around: (i) the assembly, manufacturing and testing of sensors; (ii) the assembly and testing of timing and quartz crystal devices; and (iii) the manufacturing of SSL/LED components.
Moving forward, the group believes the sensors segment, which is in high demand for bio and health wearable smart devices, will be a key earnings driver.
We view GTB’s venture into the wearable devices manufacturing supply chain, especially the healthcare segment, is in line with the move taken by global smartphone vendors such as Apple, Samsung and Google. The healthcare industry is preferred due to its recession-proof attribute which generates sustainable margins. According to GTB’s chief executive officer Heng Huck Lee, there is a “surge in demand for medical device outsourcing and contract manufacturers as brand owners aim to cut down on production costs, particularly for high-volume and low-margin devices.”
We opine that the focus on the wearable segment to be timely. This is mainly premised on the expectation that demand for smartphones, especially for the mature markets, will plateau eventually. This is in-line with International Data Corp view that shipment growth of smartphone for the mature markets will reduce to +4.9% year-on-year (y-o-y) in 2014 before dwindling further to +2.7% y-o-y in 2018. As such, the inflow of wearable devices would help to offset the decline in growth of smartphone shipment.
We view that GTB has once again shown its nimbleness and agility to be in-tune with global market movers such as Apple, Samsung and Google. The venture into healthcare wearable devices is also believed to be a safer approach given its traditionally recession-proof characteristics.
On another note, the recent weakness in its share price serves as an attractive entry point for potential investors who would like to ride on the positive vibes of wearable technology. We are reiterating our “Buy” recommendation on GTB with a target price of RM5.45 based on dividend discount model valuation methodology. — MIDF Research, Oct 14
This article first appeared in The Edge Financial Daily, on October 15, 2014.