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This article first appeared in The Edge Financial Daily, on December 27, 2016.

 

Globetronics Technology Bhd 
(Dec 23, RM3.65)

Reiterate buy call with an unchanged target price of RM4.88: We reaffirm our conviction call on Globetronics Technology Bhd, a country top pick, after our recent visit. We learned that the new light sensor, although still going through the qualification process, is on track, and is increasingly likely to be designed into the final product. 

A new infrared light-emitting diode (IR LED) product for Osram is also in qualification and could be a catalyst in 2017. Globetronics also falls in our earnings growth and yield themes. 

We recently met up with management to track development of the company’s new light sensor. Management affirmed that the qualification process was underway and that the group was already building the third evaluation model and expects sample builds to turn up in the mock-up smartphone by January 2017. 

We believe that there are higher chances for this product to materialise (vis-à-vis its previous imaging sensor) considering that the light sensor is a relatively less complex component and does not require the integration (software and hardware) with other components within the device. 

Management also guided that the second light sensor (for non-smartphone-related devices) is also on track for qualification by February 2017. This, in our view, makes sense considering the three-to-three-and-a-half-month equipment order lead time and gradual ramp-up before the end customer’s typical product launch in the third quarter. 

Globetronics could see further expansion of its LED division (26% of the cumulative nine months’ [9M16] total revenue versus 18% in 2015). Currently, it is already providing wafer sawing and die sort services for an IR LED product for a Korean end customer, but undergoing qualification at a new customer. 

If this win were to materialise, it would positively contribute to the LED division. Its other customer Soraa Inc has also seen volumes jump 50% year-on-year, albeit off a low base. 

On the flip side, volumes for the proximity sensors have continued to shrink to 2 million to 3 million units in December (from 8 million to 9 million per month) although we are uncertain if these run rates are due to seasonal weakness. 

We leave our forecasts unchanged for now and remain optimistic that the new sensors will more than compensate for any slowdown in existing operations. Key risks include loss of customers or ongoing projects that fail to materialise. — Affin Hwang Capital, Dec 22

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