GLOBETRONICS Technology Bhd’s share price rally seems to have gathered pace over the last two months, gaining 30% between Dec 6, 2016, and Feb 8, 2017.

This comes after a difficult 2016 which saw its sales plummet on low production volume of its sensors as a result of the lack of demand from its customers. Its sensor division is one of the group’s major revenue contributors.

This led to its share price losing close to half its value in 2016, as it fell from RM6.19 to RM3.48.

However, this is set to change as analysts expect to see a strong turnaround for the group’s revenue this year on the back of a ramp-up in production of its gesture sensors and the commercialisation of its new light sensors.

The gesture sensors are used in wireless earbuds manufactured by its US-based customer. Currently, the production volume averages only three million to four million units per month because they are sold separately as peripheral accessories, says AllianceDBS Research analyst Toh Woo Kim in a Jan 13 report.

But the production volume is set to increase to 16 million to 20 million units per month, starting in May, adds Toh. Globetronics’ US customer plans to bundle the wireless earbuds together with new smartphone launches in 2017.

Apple Inc recently launched its new product called the Airpod, essentially a pair of wireless earbuds that pair almost instantly to the iPhone without using Bluetooth. The Airpod, embedded with sensors, have features including automatically muting a song when one bud is removed or tapping the side of the bud to activate Siri (a virtual assistant with a voice-controlled natural language interface).

Meanwhile, the light sensors will be used in its US-based customer’s new devices — such as its smartphones, tablets and personal computers. According to an analyst, the commercialisation of the light sensors is set to take place within the next few weeks.

“Of course, there is always a risk that the commercialisation will fall through,” says the analyst.

But UOB Kay Hian analyst Yeoh Bit Kun believes that the chances of that happening are low.

“Chances of the plan being cancelled are extremely low, given that the client has firmed up on machine procurement and indicated demand of 25 million to 26 million units per month from May 2017. The total capacity for light sensors will be 31 million units per month,” he says in a report.

Yeoh is forecasting Globetronics’ revenue to grow 45% to 50% for the financial year ending Dec 31, 2017 (FY2017), with sensor-related products making up 40% to 45% of total revenue.

“Full-year contribution from the new sensors could lift total revenue 22% to 28% in FY2018, and net profit 35% to 40% to a record high,” he says.

Should the mass production of the sensors go according to plan, Toh says earnings recovery is expected to take place from the second quarter of FY2017.

Another analyst says besides ramping up production of sensors, another catalyst for Globetronics will be its LED division, another significant revenue contributor.

AllianceDBS’ Teo estimates the LED division’s revenue to recover 40% to RM79 million this year as a result of higher demand from its customer Osram.

At the current share price of RM4.27, analysts believe that there is still more potential for Globetronics’ shares if the orders for the sensors materialise. Analysts’ median target price for Globetronics ranges from RM2.65 to RM4.88, with three recommending a “buy”, one a “hold” and one a “sell”.

If calculated based on the highest target price of RM4.88 by Affin Hwang Capital Research, the shares still have a 14.3% upside potential to last Thursday’s closing price of RM4.27 apiece.

In a separate report last Wednesday, Teo says investors have partially priced in Globetronics’ success in mass production of its gesture and light sensors.

“We see Globetronics crossing the hurdles once it starts mass production of these sensors by May or June; by then, we expect investors to start looking at FY 2018 earnings that reflect the full 12 months’ contribution,” he says.

For the third quarter ended Sept 30, 2016, Globetronics’ net profit fell more than half to RM9.15 million from RM20.49 million a year ago. Revenue fell 69% to RM52.46 million from RM88.71 million previously.

Nonetheless, it is still in a net cash position of RM176 million, equivalent to 62 sen per share, as at Sept 30.

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