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Wednesday, April 11, 2018

Maybank Research sees recent selling of Globetronics as overdone

Wednesday, 11 Apr 20188:52 AM MYT

KUALA LUMPUR: Maybank Investment Bank Research sees the recent selling of Globetronics Technology as overdone (-32% year-to-date) and upgraded it to Buy for 25% upside backed by more than 3% yield.

It said on Wednesday that weak demand for 2017’s North American premium smartphones will translate to lower production in 1H18.

“As such, we expect volume loading for Globetronics’s sensors to be negatively impacted between March-July 2018, before picking up again prior to 2018’s launch of new smartphones in September 2018.

“For this, we cut FY18-20 earnings by 11%-17% and lower our TP to RM5.60 (-11%), pegged to an unchanged 18 times CY19 EPS,” it said.

Maybank Research said there are downside risks to its earnings projections mainly coming from the sensor division, as demand from its end client (North American premium smartphone brand) has softened substantially following the launch back in September 2017.

“Going forward, we are also cautious on the demand for premium smartphones as competition intensifies, mainly from Chinese smartphone brands (i.e. Huawei, Vivo, Oppo).

“Taking into account the expected earnings weakness in 2Q18 due to rationalisation of components by Globetronics’s end client, we cut our light sensor volume by 18% for FY18.

“We also lower our volume expectations for light sensor sales by 6%-9% for FY19/20. Reflecting our conservative stance on Globetronics’s earnings, our projection remains at the lower-end of street’s expectations.

“That said, potential new customers or adoption of additional sensors by existing customers at ams AG’s (AMS SW, Not rated) level to fuel ams AG’s 60% revenue CAGR expectations in 2016-19, may translate to upside risk to our earnings for Globetronics when it materialises,” it said.

Maybank Research said at its conservative earnings projection (22% three-year earnings compounded annual growth rate), Globetronics is trading at 14.6 times FY19 price-to-earnings ratio (PER) currently (13.8 times ex net cash of RM65mil as at end December 2017), offering investment value.

“Backed by 3+% yields (based on 70% DPR), risk-to-reward appears attractive. Our PER peg of 18 times is an average of our PER target for technology stocks within our coverage,” it said.


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