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Globetronics Technology - Seasonal weakness in 1Q as expected
Author: AmInvest | Publish date: Wed, 28 Apr 2021, 8:58 AM

Investment Highlights
We maintain our BUY recommendation on Globetronics Technology (GTB) with unchanged forecasts and fair value of RM2.84/share, pegged to an FY22F PE of 24x. There is no price adjustment for ESG based on our 3-star rating (Exhibit 4).
GTB’s 1QFY21 results were within expectations, recording a core profit of RM11mil after excluding an RM2mil exceptional gain from unrealised forex. Although the results accounted for 16% and 17% of our and consensus full-year estimates, we consider the results to be in line due to the seasonality of its sensor product volumes, which are usually stronger in 2H.
YoY: 1QFY21 core profit rose 16% due to: (i) a 3% increase in revenue on higher volume loadings, particularly for its sensor products; (ii) better economies of scale leading to GP margins to improve by 2.9 ppts YoY to 36.2%; and (iii) lower effective tax rate.
QoQ: 1QFY21 core profit and revenue declined by 31% and 12% respectively due to lower volume loadings of its sensor products due to the shorter month and shutdown relating to Chinese New Year festivities in February–March 2021 which caused a decline in economies of scale.
Outlook: The group is cautious on the impact of the Covid-19 pandemic on operations due to the potential disruption in production capacity arising from changes in the implementation of the movement control order (MCO) as the number of Covid- 19 cases rises in Malaysia.
In its Bursa announcement, GTB reassured that recent news on competition in its customer’s segment has not been confirmed by the customer. However, based on the customer’s recent forecast, GTB is expecting to see volatile and fluctuating loadings for certain products in quarters ahead.
We make no changes to our forecasts as seasonality in GTB’s key sensor segment has been accounted for in our earnings assumptions. Furthermore, qualification programmes are ongoing while mass production of the next generation of light and gesture sensors is targeted in June 2021 and July 2021 respectively. We await further clarity on the customer’s forecasts in an upcoming conference call.

We believe that GTB is undervalued at the current share price and that investors should take advantage of this correction to accumulate the stock.
The group’s positive prospects arise form: (i) its strength in smart sensors (~60% of total group revenue) with new generation sensor demand expected to drive growth ahead; (ii) ramp-up in laser automotive headlamps to boost its LED/SSL segment; and (iii) potential opportunities from the US-China trade war that could lead to customer diversification and revenue enhancement.
Source: AmInvest Research - 28 Apr 2021

2021-04-28 23:03

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2021-05-08 14:36