• Maintain TRADING BUY and MYR0.70 TP (27% upside), c.1% yield. Globetronics Technology’s 9M24 core earnings of MYR12m (-24.4% YoY) met ours but missed Street’s expectations. The slower performance YoY is dragged by lower loadings and unfavourable FX movement. We expect 4Q to trend higher on the back of favourable FX trend and stable loadings while potential contribution from the new programmes could be the growth drivers into FY25.

• Met ours but below Street’s estimates. 9M24 revenue of MYR87m (-12.4%) and core earnings of MYR12m met our expectations, at 70% our FY forecasts but below Street’s numbers at only 34.3%. Overall topline was affected by slower loadings for sensor products given the lower allocation and weaker demand for smart devices. EBITDA margin was steady at 28.4% (9M23: 29.3%), despite the realised FX loss impact. These coupled with some loss of economies of scale, pulled down the core earnings.

• Slow loadings persist. 3Q24 loadings remained unexciting, with revenue coming in lower (-15.4% YoY) at MYR29.3 due to lower loadings, compounded by unfavourable forex. Consequently, core profit plummeted 72.8% YoY on FX impact. Sequentially, revenue rose 5.6% on seasonally strong loadings but margins are affected by unfavourable FX impacts, causing the core profit to contract 49.9%.

• Outlook. We expect volume loadings for gesture and light sensor as well as existing light-emitting diode (LED) volume loadings to be relatively stable in 4Q. The recent services agreement with ChipMos Technologies Inc (ChipMos) to provide packaging, testing, and backend services for memory integrated circuits (IC) with an estimated value of MYR145m and the master agreement with POET Technologies (POET) to provide turnkey manufacturing and packaging services in semiconductors, including assembly and testing of optical interposer modules, could be the medium- term growth catalysts.

• Ratings. We maintain our tactical TRADING BUY call, given the back-to-back positive developments with POET and ChipMos. While the results are hardly exciting, the share price weakness may have reflected the negatives on the numbers, resignation of auditors, change of top management, and business strategies. However, the structural change in the company’s fundamental and strategies remain a longer-term uncertainty. We keep our forecasts and TP of MYR0.70, based on an unchanged 20x FY25F P/E (at its 5-year mean), inclusive of a 2% ESG discount, given GTB’s ESG score of 2.9.

• Key downside risks: i) Further weakening of smartphone and peripheral sales, ii) stronger MYR vs USD, iii) major product and/or customer losses, and iv) talent retention.

Source: RHB Securities Research - 2 Dec 2024