Friday 21 Jun 2024
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This article first appeared in The Edge Malaysia Weekly on April 15, 2024 - April 21, 2024

GLOBETRONICS Technology Bhd, an established outsourced semiconductor assembly and test (OSAT) player, is planning to move up the value chain by diversifying into advanced packaging to ride the wave of rising demand for such services.

It also expects advanced packaging to be its future revenue growth driver and aims to attain leadership within the segment in this region over the next five years.

CEO Heng Charng Yee says the new business segment will enable Globetronics to package semiconductor chips supportive of artificial intelligence (AI) technology.

“The critical part of advanced packaging is the ability to co-develop with customers starting from package design and simulation. That will be the group’s strength,” she adds.

The group’s strategy is to rope in a partner from Taiwan to shorten the learning curve for Globetronics and build up confidence among potential customers that are interested in the service.

The company is in talks with a leading Taiwanese OSAT player established in advanced packaging to bring its technological know-how to Malaysia.

“We are in discussions now about the investment plan. The timeline to set up the facility can be as short as nine months to up to two years [after the deal concludes],” Heng tells The Edge during a media plant visit in Penang.

Globetronics says it will fund the advanced packaging facility via internal funds and bank borrowings, but final details about the investment will be announced later. Its cash and bank balances stood at RM210.11 million as at end-December 2023, with no borrowings.

Advanced packaging is a subset of traditional packaging that boosts computational capabilities while lowering power consumption and costs. It also offers higher profit margins than traditional packaging. Demand for AI, 5G technology and the Internet of Things (IoT) drives growth for advanced packaging, prompting more companies to invest in such technology.

The global advanced packaging market was worth US$29.2 billion in 2022 and is expected to reach US$66.9 billion by 2032, growing at a compound annual growth rate (CAGR) of 8.7% during the forecast period, according to DataHorizzon Research, a market research and consulting firm.

In Taiwan, OSAT vendors Advanced Semiconductor Engineering Inc (also known as ASE Group), Powertech Technology Inc and the world’s largest contract chip manufacturer Taiwan Semiconductor Manufacturing Co Ltd (TSMC) are key players in the advanced packaging market.

Globally, OSAT players such as US-based Amkor Technology Inc and China-based JCET Group Co Ltd, chipmaker Intel Corp and consumer electronics giant Samsung Electronics Co Ltd are in the advanced packaging business.

Note that Inari Amertron Bhd and UWC Bhd are among local listed players that have ventured into advanced packaging testing. 

US-China tensions open door for Globetronics’ advanced packaging venture

Heng says Globetronics benefits from US-China geopolitical tensions, which have put Malaysia in a sweet spot with businesses seeking to build resilience in global supply chains, Heng says.

“This geopolitical situation is a good thing for Malaysia … Another advantage for us is a strong push from customers that don’t want China’s participation, [because] people would ask whether we are a Malaysian company and they like a neutral position. So, that is our advantage,” she explains.

“This is the segment to grow, but it isn’t easy, as [advanced packaging] is dominated by [established] industry players. With the advanced packaging mostly from Taiwan and some from China, this region has a very good opportunity. So, we want to position and enter this market quickly to become a market leader.”

Heng points out that there are numerous requests, including from international bodies such as the Semiconductor Industry Association, for Malaysian companies to invest in the advanced packaging segment.

Apart from competition from overseas players, high investment costs are a major concern for Malaysian companies when investing in the advanced packaging segment.

“There is a lot of reluctance … because of the substantial investment, and the know-how also is challenging. But if you look at it, this [advanced packaging] is highly dominated by Taiwanese players. The fear of doing this is real,” Heng says, adding that Taiwan dominates in advanced packaging with more than 50% market share.

“But, if we do not do this in Malaysia, we could lose out on this segment eventually. If you look at the smartphone, almost every component is very advanced. Then, if you look at future automotive, they will also move into this segment as well. In fact, our sensor business is also looking at the new generation requirement already. So, we see this happening and if we don’t take this step, we will be left behind.”

Heng has been with the group since 2013, starting out as a quality and strategic business manager at subsidiary Globetronics Manufacturing Sdn Bhd. She was appointed CEO in July 2022, succeeding her father Datuk Heng Huck Lee, who retired after serving as CEO since January 2008.

She is also the group’s non-independent executive director. Prior to her appointment as group CEO, she served as the group’s chief operating officer since January 2021.

Early this year, Heng exercised her employee stock options and acquired 829,700 shares before selling one million shares in Globetronics on Feb 7, leaving her with just 32 shares in the company.

According to Globetronics’ 2022 annual report, she had 170,332 shares or direct interest of 0.03% in the company as at March 24, 2023.

Near-term outlook seen as challenging for Globetronics

UOB KayHian Research says the game changer for Globetronics could come from any new business collaboration or advanced packaging manufacturing solution.

“Globetronics is rationalising its low-margin business and pursuing new programmes with its existing and new customers. While the company is not fully out of the woods yet, the game changer could be the fruition of its active engagement with potential Chinese and Taiwanese customers,” the research house wrote in a Feb 21 report.

UOB KayHian, which has a “hold” call on Globetronics with a target price of RM1.49, also noted that the company benefits from 5G and IoT, with its growing relevance in high-end smartphones. In the long term, it remains hopeful of the group’s ability to improve its relevance in high-tech sensor products for various applications, which would continue to spearhead earnings growth.

According to Bloomberg data, there are five “hold” calls and four “sell” recommendations on Globetronics.

The counter closed at RM1.40 last Tuesday (April 9), exceeding analysts’ 12-month median target price of RM1.24.

Maybank Investment Bank Bhd, which rated Globetronics a “sell” with a target price of RM1.05, believes its shares are overvalued and its outlook remains challenging in the near term, owing to margin pressures from a high fixed-cost base.

The fewer working days because of festivities in the first quarter this year are expected to pose a continuous drag on its financial performance, Maybank IB adds.

Given the inflation pressures and stiff competition in the premium segment of the wearables markets that would weigh on demand for the company’s products, Maybank IB has cut its earnings forecast for Globetronics by 7% for the financial year ending Dec 31, 2024 (FY2024), and 12% for FY2025. It now sees Globetronics delivering an annual net profit of RM34 million in FY2024 and RM41 million in FY2025.

Globetronics’ revenue and earnings have been volatile, and on a declining trend since FY2018.

For FY2023, Globetronics generated a revenue of RM131.82 million with a net profit of RM26.42 million.

Its earnings have dwindled from RM70.12 million in FY2018 to RM45.46 million in FY2022 while revenue dropped from RM327.96 million to RM180.05 million during the same period.

Boardroom reshuffle amid APB Resources stake acquisition

Penang-based Globetronics was co-founded by former executive chairman Michael Ng Kweng Chong and C K Tan in 1991, providing integrated circuit (IC) burn-in services. It was listed on the local bourse in 1997.

Lately, the company has seen changes in its board and major shareholders, following the Ng family’s exit and emergence of APB Resources Bhd as Globetronics’ second-largest shareholder, with a 10.41% stake.

The Employees Provident Fund is the largest shareholder in Globetronics, with a 13.06% stake; Lembaga Tabung Haji has 5.36% in the company.

APB Resources is involved in the fabrication of specialised design process equipment for the petrochemical, oleochemical, oil and gas, power as well as food and beverage industries.

In a filing last December, it was disclosed that APB Resources acquired a 10.41% stake in Globetronics for RM140 million, or RM2 per share, from General Produce Agency Sdn Bhd (6.89%, or 46.31 million shares) and Ng Kweng Chong Holdings Sdn Bhd (3.52%, or 23.69 million shares), vehicles of the Ng family, who co-founded Globetronics.

Following the completion of the deal in February, Globetronics named three new members to its board — Liaw Way Gian, Kang Wei Luen and Ku Chong Hong. Liaw was made group executive chairman, while Kang and Ku were appointed executive directors.

All three appointees also hold directorships in APB Resources, Artroniq Bhd and Sarawak Consolidated Industries Bhd. The counters of these companies faced heavy selling pressure in January this year.

Subsequently, the Globetronics board saw the departure of executive chairman Ng Kok Yu, non-independent and non-executive director Ng Kok Khuan, and independent and non-executive directors Datin Suryani Ahmad Sarji, Khoo Kay Leong, Ong Huey Min and Mohammad Hazani Hassan, effective Feb 21.

Kok Yu and Kok Khuan are Michael’s son and nephew respectively.

As to the boardroom changes in Globetronics, RHB Research Investment Bank Bhd stated in a Feb 22 report that the onboarding of a new major shareholder might spell a more growth-focused phase ahead, although the overall business direction remains unchanged in the near term. Still, the research house noted that the potential risk of changes in the management team and strategies, with the onboarding of new major shareholders, could bring about a “structural change” to the counter.

RHB Research has kept its “neutral” call for Globetronics and maintained its target price of RM1.45.

At last Tuesday’s close of RM1.40, Globetronics’ share price has declined 12.5% year to date, valuing the group at RM945.06 million. 
 

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