Sensor unit expected to drive Globetronics earnings

This article first appeared in The Edge Financial Daily, on February 26, 2020.
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Globetronics Technology Bhd
(Feb 25, RM2.33)
Maintain hold with a lower target price (TP) of RM2.40:
Globetronics Technology Bhd’s sensor volumes remained robust in the fourth quarter ended Dec 31, 2019 (4QFY19), declining just 1% quarter-on-quarter (q-o-q) based on our estimates, despite the Christmas holiday.

A gradual ramp-up in Globetronics’ automotive laser module assembly business also likely to have contributed positively.

However, a weakness in its timing device and wafer processing businesses likely resulted in revenue declining 11% q-o-q.

Globetronics’ FY19 core profit of RM46 million or -37% year-on-year (y-o-y) was within expectations. The weaker earnings were due to the timing device business’ contraction.

Its FY19 earnings before interest, taxes, depreciation and amortisation margin improved to 37.8%, up 4.5 percentage points y-o-y due to a larger contribution, as a percentage of revenue, from the higher-margin sensor division — accounting for 55% of revenue versus FY18’s 46%, despite a shift in the product mix of the division itself in favour of gesture sensors with a lower average selling price contributing to a weaker sensor revenue of 29% y-o-y.

Our FY20 and FY21 earnings per share (EPS) forecasts are reduced by 2% to 5% to factor in Globetronics’ 2019 financial statements and a supply chain disruption because of Covid-19 virus.

Our FY22 estimated EPS of 11.7 sen or +9% y-o-y is also introduced.  

A strong 46% EPS growth for FY20 estimate would be largely underpinned by growth in the sensor division and a ramp-up in the production of the automotive headlight business.

In the sensor division, strong demand for a customer’s wireless earbuds has driven capacity expansion for the gesture sensor, while we expect several new sensors for consumer electronics and non-consumer-related applications to drive Globetronics’ earnings.

Globetronics is trading at a FY20 price-earnings ratio of 24 times, above its five-year mean of 20 times, but it’s fair considering a likely stronger growth for the company this year.  

Risks include a stronger- or lower-than-expected demand for its customers’ products, new sensor products, a stronger or weaker ringgit against the greenback and the speed of qualification of new customers. — Affin Hwang Capital, Feb 25