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Wednesday, October 26, 2016

Globetronics Technology (GTB MK) - Still cloudy visibility

Author: kltrader | Publish date: Wed, 26 Oct 2016, 09:37 AM

3Q16 within our expectations, below street’s

Despite weaker sequential revenue (-9% QoQ), mainly from sensor and LED segments, earnings improved 40% QoQ on better cost controls. We keep our forecasts, expecting earnings to weaken on seasonally slower activities in 4Q16. Near-term visibility for Globetronics remains cloudy in absence of a pick-up for its sensor division which has seen sizeable capex in 2015. On pricey valuations (19x FY17 EPS), we maintain SELL on Globetronics with an unchanged TPof MYR2.65 pegged on 14x FY17 EPS.
Absence in demand pick-up remains a concern

3Q16 net profit of MYR9m (+40% QoQ, -55% YoY) took 9M16 earnings to MYR19m (-65% YoY), meeting 78%/63% of our and Bloomberg consensus full-year forecasts – within our expectations but below street’s. Weaker sequential revenue in 3Q16 confirmed that there was no pick-up in sensor demand despite new major smartphone launches. Apart from the QCTD segment, revenue from all other major segments contracted 28%- 46% QoQ. Nonetheless, better cost control measures and lower taxes saved the day, lifted earnings by 40% QoQ.
Opportunity or threat from industry consolidation?

ams AG (AMS SW, Not Rated) recently announced its acquisition of Globetronics’ Swiss sensor client, a high-end optical packaging leader, in order to be a leader in optical sensing. While we expect minimal impact to Globetronics in the near-term from this development, we do not rule out the possibility of a review by the combined entity on their outsourcing partners over the longer term; offering further opportunities for Globetronics should it succeed in proving its capabilities. As development period of sensor products are lengthy in nature, rationalisation of outsourcing partners may only materialise for the future new sensor products beyond 2017/18.
Steep valuations despite 116% EPS growth in 2017

Our earnings forecast assume 100m smartphones to adopt the 3D-imaging sensors in FY17, with shipment to pick-up in 2Q17. On that premise, we project a 116% jump in earnings but that would still bring Globetronics to a still-pricey valuation of 19x FY17 PER. Stronger-than-expected adoption could warrant a re-rating. Pending that, our SELL rating stays.

Source: Maybank Research - 26 Oct 2016

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