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Friday, August 3, 2018

Gtronic - Explosive Growth Ahead? (1) - YiStock


Author: YiStock | Publish date: Wed, 20 Jun 2018, 06:27 PM




Globetronics Technology Bhd.

I wrote about Pentamaster on its promising prospect riding on the 3D Sensor segment.



Globetronics is another company that i think a very potential investment grade pick for both capital appreciation and dividend income. Let begin with some important info:





In 2017 Annual report, Gtronic has highlighted several important development in its business.

1) Light Sensors - Mainly for 3D sensing used in Iphone X

2) Gesture Sensor - I relate it to Apple Airpod 2

3) Other Sensors

I will focus on item (1) & (2) in this article.



1) Light Sensors - Mainly for 3D sensing use in Iphone X

For light sensors, we all know that Heptagon, together with Gtronic, are supplying the key light sensor component for 3D sensing used in Iphone X - the very first smart device equipped with 3D sensing for facial recognition.

The iphone X was Revealed in September 2017 & Shipment to consumer in Nov 2017. Hence, we saw Gtronic experieced huge volume loading in 2H 2017. And therefore, a big 240% jump in PAT in 2H 2017 financial report.



Apple experiencing a great success in Iphone X (sold 29 mil in Q4 2017 & 16 mil in Q1 2018), despite many doom report projecting how bad the Iphone X sales is. And it is projected to sell another 13 mil unit of Iphone X in Q2 2018.

Gtronic in its Q1 2018 quarter report has also guided a softer volume loading in March to May 2018 and expect volume loading to start improve only in Jun 2018. The statement by director matched with the projection of lower unit sell in Q2 18 vs Q1 2018 by other analyst.



Reason of low volume loading is because Apple need to clear it inventory. Refer below:



I will try to do some forecast for Q2 2018 result and predicting Q2 should NOT be a knee-jerk quarter (but also the Only opportunity to grab as many gtronic stock as possible). Gtronic may experience explosive growth only in Q3 2018 and onwards.

In recent UOB Kay Hian research report, the production of light sensor in 2H 2017 was: Jun (8 mil); July (11 mil); August (21 mil) and Dec (32 mil).

I noticed that Gtronic revenue was quite flattish prior to the light sensor production. Therefore, i hereby making a very bold assumption that any surge in revenue for Jun to Dec 2017 were due to the light sensor.

Q1 17 vs Q2 17, revenue surged RM 13 mil for 8 mil unit sensors @ RM 1.63 per sensor

Q1 17 vs Q3 17, revenue surged RM 37 mil for 21 mil unit sensors @ RM 1.76 per sensor

Q1 17 vs Q4 17, revenue surged RM 55 mil for 32 mil units sensor @ RM 1.72 per sensor.

Q1 17 vs Q1 18, revenue surged RM 36 mil, by applying ASP RM 1.70 per sensor, this work out to be around 21 mil sensor produced, quite closed to Q3 17 revenue.

By totaling up 4 quarters of sensor produced, the number is approximately 82 mil units.

According to the projection of the most reliable apple analyst, the target unit sold for Iphone X is 80 mil. Therefore, the light sensor contribution from Iphone X should be very very minimal in Q2 2018.



The Good news is, market has already responded to this negative news.





So, why 2H 2018 will be the explosive growth phase for Gtronic?

Apple is expected to launch 3 new models of Iphone in September 2018. According to the latest report, from 2H 2018, the shipment of 3 models is expected to be around 75 mil to 85 mil units. 1H 2019 is shipment is expected to be more than 2H 2018. Making total estimate more than 150 mil to 170 mil unit for the next 1 year. This is more than double of 2017 2H quantity produced. Other reports predicted 100 mil units to 120 mil units for 2H 2018.

The 3 new models are:

(1) 6.1 " LCD version of Iphone X, expected selling price USD 600 - 700

(2) 5.8" iphone X upgrade & 6.5 " OLED Iphone X plus.

All new models are equiped with Face ID function.



Apple will most probably, to equipped all other upcoming Iphone with 3D sensing application in future. On top of that, it has invested great deal of money into Finisar, a key player in VCSEL technology in Dec 2017.



By putting all above pieces info, let do a Q2 18 Revenue Forecast (please bear in mind, this involved lot of guesstimate and can never be use as actual guidance)and also 2H 2018 Revenue. (UOB KAY HIAN used 90 mil units from Jun to August 2018- may include gesture sensor).To be conservative, i will use 100 mil units of light sensor for 2H 2018.

By using similar model in Q1 2018, revenue estimation for whole of 2018

Q1' 18 = RM 86.5 mil (Actual)

Q2' 18 = RM 84 mil (other segment flattish Plus 20 mil unit new sensors) - SHOULD NOT BE A KNEE-JERK Quarter.

Q3'18 = RM 120 mil (other segment flattish plus 40 mil units new sensors/ ~13 mil units per month capacity )

Q4'18 = RM 120 mil (other segment flattish plus 40 mil units new sensors / ~13 mil units per month capacity)

TOTAL 2018 Revenue = RM 410.50 includes 120 mil units light sensors (Q1= 20 mil, Q2 = 20, Q3 = 40 mil & Q4 = 40 mil)

The numbers is very closed to Affin Wang estimate of RM 415 mil for 2018 full year.



As mentioned earlier, apple will most likely equiped all it future iphones with 3D sensing.



By running at 40 mil units sensor per quarters or 160 mil unit per year , Gtronic is certainly capable to reach RM 500 mil per year (RM 120 mil x 4) revenue for 2019 & 2020.

What if iphone super cycle?



(2) Gesture Sensor - Mainly refer to Apple Airpod 2



In latest Annual report, Gtronic mentioned that gesture sensor mass production is expect happed in Q2 2018.



Analyst report has indicated that the shipment for Airpod for 2018 is expected to double 2017 volume and reach 28 mil units.

Apple has long wanted to launch Iphone SE2. It is reported that this model has come with NO headphone jack

The delayed has caused Gtronic revenue dived in FY 2016.



Latest news seem tally with what the Gtronic management has highlighted in Annual report where this iphone SE 2 likely to go for sale in Jun 2018.

As such, Q2 2018 MAY NOT BE a bad quarter. The low loading factor in light sensor may have cushioned by gesture sensor.



Let Wait and See!

On valuation wise,

Should FY 2018 full year revenue at RM 410 mil, average net margin for 3 preceeding quarters of 18.8%, Full year earning should be around RM 77.2 mil / EPS 11.6 sen (11% lower than Affin wang's projection)

At current share price of RM 2.20, the FPER is looking at 18.9 times.

For FY 2019, i used Q4 2017 net margin as guide simply because Q4 17 ran 32 mil units sensor per quarter, closest to 40 mil units projection. Also, i expect the 2019 sensor volume is much more stable. Therefore, RM 480 mil x 23% = RM 110 mil net profit / EPS 16.5 sen (Affin Wang projection Revenue: RM 500 mil; Net profit: RM 118.4 mil)

At current share price of RM 2.20, the FPER is looking at 13.3 times.

Cheers,

YiStock

Note: My TP for Gtronic, End 2018 RM 2.75; End 2019 RM 3.90 @ PE 23.79.

I remember Gtronic used to trade at PE above 30. That will give Gtronic PE of RM 5.00. How i wish!

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