Globetronics Technology Bhd
(May 14, RM1.66)
Maintain buy with a higher target price (TP) of RM2.57: Globetronics Technology Bhd saw weak results in the first quarter of financial year 2019 (1QFY19) although we believe a subsequent earnings recovery would materialise, as in 2018. While we expect 2019 revenue to be lower year-on-year (y-o-y), earnings should not be significantly impacted, benefiting from a favourable revenue mix.

New sensor and non-sensor-related products are in the pipeline, and would likely replace a revenue slack from its timing device business. We remain confident that management will steer the company and develop a new revenue driver again, ensuring its strong earnings growth profile is retained. We maintained our “buy” call.

To recap, Globetronics’ 1QFY19 earnings were weak, with nearly all key segments seeing a sluggish performance. Its sensor division’s weakness was due to its light sensor product although its gesture sensor, designed into a wireless headset, continued to be well-received and production volumes remained robust. Overall, we believe sensor volumes will improve in the coming quarters due to seasonality.

The timing device segment contributed 30% of the group’s revenue in 2018. As this business’ contribution may contract in the coming years, management has been actively working on several initiatives including introducing new products to cover the expected revenue shortfall. We expect several sensor and non-sensor products to be qualified in the second half of 2019.

Despite lowering our 2019 to 2021 earnings per share estimates by 12% to 18%, we think Globetronics is still appealing given its increasing presence as a niche sensor player. We also like its dynamic management team having successfully steered the group, taking advantage of attractive business opportunities.  We see the timing device business being replaced by another large project likely to sustain its earnings growth in future. While the company consolidates its earnings, the risk-reward profile remains favourable. In addition, earnings for 2019 to 2021 estimate and dividend yields of 5% to 6% are attractive.  — Affin Hwang Capital, May 14