This article first appeared in The Edge Malaysia Weekly on September 16, 2024 - September 22, 2024

GLOBETRONICS Technology Bhd (KL:GTRONIC), which saw a major shareholder change in February, has found itself in the spotlight following a one-day 34% plunge in its share price last Tuesday. The counter has been on a downward trend since mid-June, falling more than 60% to last Friday’s closing price of 55 sen.

The selling pressure intensified when the company announced last Tuesday that its auditor KPMG PLT had resigned on a voluntary basis. It is unclear at this point the reason for the resignation and no explanation was provided by the audit firm.

Coincidentally, its second largest shareholder, APB Resources Bhd’ (KL:APB) share price also took a hit last week, falling almost 22.3% to close at RM1.01 last Friday, giving the company a market capitalisation of RM114 million.

It is understood that Globetronics had been actively engaging with investors to explain its future direction after the change in major shareholders.

Previously, the company, which specialises in outsourced semiconductor assembly and test (OSAT), announced its plan to diversify into the advanced packaging industry, in line with the National Semiconductor Strategy (NSS) that was launched in May.

“Advanced packaging is part of OSAT and would require a significant amount of investment if Globetronics wants to do it on a big scale,” says a market observer.

An analyst points out that the company would need to invest at least RM300 million to diversify into advanced packaging.

“At the beginning, Globetronics wanted to do it on a big scale. But there is also the risk of securing clients. As such, the new shareholder is looking to gradually diversify into advanced packaging,” says the analyst.

Note that Inari Amertron Bhd (KL:INARI) and UWC Bhd (KL:UWC) are among locally listed players that have ventured into advanced packaging testing.

Globetronics is a cash-rich company with no borrowings. Nonetheless, its latest financial results for the second quarter ended June 30, 2024 (2QFY2024) showed that its cash balances had reduced to RM144.70 million from RM210.11 million as at Dec 31, 2023.

Meanwhile, on its latest balance sheet, its receivables, deposits and prepayments had increased to RM65.56 million from RM1.04 million as at Dec 31, 2023. As at March 31, 2024, these stood at RM11.26 million.

The lack of information on the receivables, deposits and prepayments has raised concerns about the company among the investing community.

Another analyst The Edge spoke to notes that prepayments are common in the industry, but the question is to whom the amounts were paid and for what reason.

“Prepayment is not an issue because sometimes companies use it to pay for raw materials up front. But what is the nature of the prepayment, especially at that scale?” he says, adding that while Globetronics is profitable, OSAT is not an easy business as it requires substantial capital expenditure to keep up with the technology.

When contacted, Globetronics’ management declined to comment on the matter.

Following the resignation of its auditor, Globetronics issued a statement stating that KPMG’s voluntary resignation was in line with the group’s “new strategic direction, influenced by newly emerged shareholders and management”.

“We extend our gratitude to KPMG for their long service and look forward to maintaining a positive relationship as we transition. It is important to note that the financial reports so far have not been audited by KPMG for this year, ensuring there is no impact on our financial integrity from this transition,” the company said last Tuesday.

In the meantime, it has shortlisted audit firm UHY Malaysia as its new auditor, pending the completion of official documentation to formalise the appointment.

Globetronics’ shares were traded at RM1.60 apiece at the start of the year, giving the company a market capitalisation of RM1.08 billion. At last Friday’s closing price, its market capitalisation stood at RM371.46 million, translating into a loss of RM708.54 million in value.

Long-time institutional shareholders have pared down their equity interest in Globetronics, with government-linked investment companies (GLICs) such as the Employees Provident Fund and Lembaga Tabung Haji (LTH) ceasing to be substantial shareholders. Two days after the resignation of KPMG, LTH ceased to be a substantial shareholder of Globetronics after selling 4.02 million shares.

EPF, which was the largest shareholder of Globetronics earlier this year with a 13.44% stake, has reduced its shareholding to 5.36%. The provident fund ceased to be a substantial shareholder of the company after selling 9.48 million shares to bring its equity interest to 3.88% last Friday.

Globetronics, which was once an investor favourite, had been one of the strong players in OSAT. It had always managed to cater to the fast-changing technology sector. This was evident in its strong financial performance over the years. Also, it regularly paid out 90% of its profits on average as dividends, making it attractive to institutional investors like EPF and Kumpulan Wang Persaraan (Diperbadankan) (KWAP).

Nonetheless, Globetronics’ earnings have been on a decline since 2018 due to growing competition in the OSAT space. The sell-off in its shares also came at a time when more analysts were turning bearish on the sector. According to Bloomberg data, six analysts recommend a “hold” on the stock while two have “sell” calls.

For the first half of the financial year ended June 30 (1HFY2024), Globetronics’ net profit fell 3.7% to RM9.99 million from RM10.38 million a year earlier, on the back of a 10.8% decline in revenue to RM57.66 million from RM64.64 million previously. The company attributed the drop in its top and bottom lines to lower orders from certain customers and foreign exchange losses.

In FY2023, Globetronics’ net profit plunged 41.9% to RM26.42 million from RM45.46 million, on the back of a 26.8% drop in revenue to RM131.82 million from RM180.05 million in FY2022.

According to stock exchange filings, Globetronics’ single largest shareholder is Ooi Keng Thye, who has an 11.39% stake, followed by APB Resources with 10.36%. There is not much publicly available information on Ooi except that he is a substantial shareholder of Nova MSC Bhd and Frontken Corp Bhd.

Meanwhile, APB Resources emerged as Globetronics’ substantial shareholder in December last year after it acquired a 10.4% stake in the Penang-based company for RM140 million, or RM2 per share, from the founding family. The transaction marked the Ng family’s exit from Globetronics co-founded by its patriarch Michael Ng Kweng Chong in 1991.

APB Resources previously described the move to invest in Globetronics as “strategic and timely” to bank on the growth of the electrical and electronics market in Malaysia. Note that the company is involved in the fabrication of specialised design engineering equipment for the petrochemical, chemical, palm oil and power industries.

Following the shareholding change, Globetronics saw a slew of changes to its board of directors as APB Resources took management control as the second-largest shareholder.

Globetronics named three new members to the board, namely executive directors Liaw Way Gian, Kang Wei Luen and Ku Chong Hong. All three appointees currently hold directorships in APB Resources, Artroniq Bhd (KL:ARTRONIQ) and Sarawak Consolidated Industries Bhd (KL:SCIB).

“As you can see, after they bought the stake from the Ng family, there were changes to the board of Globetronics. They [APB Resources] have indicated that they are here [Globetronics] for the long run,” says a source.

The decline in Globetronics’ share price has translated into a paper loss of RM102 million for APB Resources since it bought into the company in February.

It is worth noting that APB Resources, which is a loss-making company, has also seen some shareholding changes since 2023.

In June last year, co-founder and executive director of Press Metal Aluminium Holdings Bhd (KL:PMETAL) Datuk Koon Poh Tat acquired 6.35 million shares or 5.72% equity interest in APB Resources on the open market. Most of the shares were believed to have been acquired from APB Resources’ former CEO and executive director Yap Swee Sang, who sold 4.2 million shares, or a 3.78% stake, for RM8.24 million, or RM1.96 per share, via Ikram Pintas Sdn Bhd. The disposal reduced Swee Sang’s indirect shareholding in APB Resources to 5.4%.

Immediately after Koon emerged as a substantial shareholder, nearly all the board members resigned. These included founder and chairman Yap Kow @ Yap Kim Fah, chief operating officer and executive director Tan Teng Khuan as well as four other directors — Lim Hong Liang, Chua Chia Cheng @ Chua Chia Kwee, Lim Kwee Yong and Datuk Yap Kau @ Yap Yeow Ho.

In October, Swee Sang resigned from APB Resources and ceased to be a substantial shareholder.

Interestingly, the other shareholders of APB Resources include businessman Chan Yok Peng (3.79%), businessman Datuk Eddie Ong (3.07%) and Signature International Bhd co-founder Datuk Michael Chooi Yoey Sun. 

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