This article first appeared in The Edge Financial Daily on April 27, 2017 - May 3, 2017

Globetronics Technology Bhd
(April 26, RM5.35)
Maintain buy with a target price (TP) of RM5.75: Globetronics Technology Bhd reported first quarter ended March 31, 2017 (1QFY17) revenue of RM49.8 million (down 15.2% year-on-year [y-o-y]), but with a higher net profit of RM4.7 million (up 26.9% y-o-y), although this was due to foreign exchange (forex) losses in 1QFY16.

Core earnings of RM5.3 million (down 39.5% y-o-y) accounted for 7% of our full FY17 forecast (9% of the street’s full-year estimate).

We nevertheless deem the results to be in line with expectations, with expectations of a significantly stronger second half (2H) ending Dec 31, 2017, with the commencement of production of light sensors and a ramp-up in production of gesture sensors.

Sequentially, 1QFY17 core profit rose strongly by 70%, but only due to forex gains in 4QFY16. Operationally, business was relatively modest except for an improvement in the light-emitting diode (LED) division.

Globetronics has seen an increase in wafer processing and die sorting services for Osram.

We see the LED segment as the main driver of the group’s 6.6% quarter-on-quarter revenue growth.

Our “buy” call is reaffirmed, and our TP is unchanged at RM5.75, based on a FY17 price-earnings ratio of 21 times. We leave our FY17 to FY19 earnings per share (EPS) forecasts unchanged, with a 203% y-o-y EPS growth forecast for FY17.

This would be underpinned predominantly by mass production of light sensors. There could be an upside to earnings if there is a ramp-up in production capacity for gesture sensors. Key risks to our call include a loss of customers or ongoing sensor projects that fail to be designed into current-year models. — Affin Hwang Investment Bank Bhd, April 26