This article first appeared in The Edge Financial Daily, on March 28, 2016.

GEORGE TOWN: Despite a flat to low single-digit growth projection for the current year due to the global challenges and an inventory adjustment problem, Globetronics Technology Bhd is optimistic about the company’s prospects as its new sensor products are set to see mass production by the second half of the year.

“Our research and development team is putting a lot of focus on new product developments in the sensor segment to move up the value chain as co-developers of new components coming into the marketplace,” said chief executive officer Heng Huck Lee.

“Some of the products we are working on, which are targeted to go into mass production in 2016, include motion/gesture, imaging and health sensors,” Heng told The Edge Financial Daily in an email interview.

The sensor sector contributed 40% to its total performance in the financial year ended Dec 31, 2015 (FY15) and is soon expected to account for more than 50%.

“There was a new sensor component that went into mass production in December 2014 that made a full-year contribution in FY15. Because of this higher contribution from our sensor segment, which became the biggest revenue contributor, coupled with a reduction in our legacy semiconductor business, this was able to contribute to better net profits for the year,” said Heng.

“We will continue to invest to grow this segment. With more new products starting to contribute in 2016 and beyond, we expect this segment to make up more than 50% in the next one to two years,” he added.

In the meantime, Globetronics has also allocated RM30 million to RM35 million for the expansion of a new project this year, allowing it to penetrate the Internet of Things (IoT) market with a double-digit growth projection in five years.

Heng declined to comment further on the project as it is still at the initial stage.

Globetronics, which started off as a small-medium enterprise making integrated circuit burn-in services in 1991 for a US multinational corporation, has seen its net profit grow 153% between FY10 and FY15. Revenue rose 23% during the period.

For FY15, net profit rose 14.96% to RM75.26 million from RM65.46 million a year ago mainly due to better economies of scale or product mix coupled with productivity improvement or cost-control programme carried out by the group.

Revenue, however, slipped 3.2% to RM343.65 million from RM355.04 million in FY14 due to lower sales recorded in Malaysia.

The group said this was offset by the Singapore and US segments that recorded healthy sales and net profit improvements.

Describing the FY15 results as a decent finish to the year, AllianceDBS said first half of FY16 ending June 30 (1HFY16) results are expected to be weaker year-on-year before growth resumes in 2HFY16 as the 3D imaging sensor goes into mass production.

“The 3D imaging sensor will be an additional content win for Globetronics in FY16, besides the proximity sensor that is currently supplied to a leading smartphone manufacturer.

“It will collectively spend about RM60 million in capital expenditure in 2HFY15 and 1HFY16 to install new capacity for this new sensor product.

“Upon full installation by end-2QFY16 (second quarter ending June 30, 2016), the new manufacturing lines will be capable of producing an additional 40 million units per month. Its current production capacity is 28 million units per month,” the research house said in a recent note.

AffinHwang Investment Bank said Globetronics told investors in a meeting that it had completed the line readiness audit of two sensor products — the imaging sensor and motion/gesture sensor.

Globetronics’ management, however, said that they had yet to receive any volume confirmation.

“Moreover, investor concerns were around the adoption of the imaging sensor across the end customers’ entire product mix [or parts of],” AffinHwang said in a March 14 note.

AffinHwang revealed that the group’s sensor business is expected to account for up to 56% of FY16 estimated revenue and that Globetronics has been continuously working to reduce risk exposure to the single-end customers.

“In the works, is a collaboration for the introduction of several new sensor products to the Korean and Chinese smartphone manufacturers. Optimistically, this could take off as soon as the end of 2016,” it said.

Meanwhile, Heng said the group sees a weaker market outlook and orders for the next two quarters (2QFY16 and 3QFY16 when asked about its order book.

On its cash reserves of RM177.9 million as of Dec 31, 2015, he said Globetronics has dedicated resources and is aggressively developing and expanding another new business segment.

“Our strategy upon successful execution will enable IoT and medical solution-related businesses making up a sizeable revenue and profit contribution in future.

“Our efforts to seek out mergers and acquisitions have not borne positive results so far and we are not rushing. Instead we are refocusing more efforts to expedite our own growth strategy,” he added.

Heng also said the group is engaged in cost reduction measures and improving efficiency by introducing value engineering programmes to raise yield and automating line processes to generate more output.

“We are also purchasing auto optical inspection machines to reduce labour cost, which represents a significant portion of our cost elements,” he said.