Investment Highlights

• We initiate coverage on Globetronics Technology (GTB) with a HOLD recommendation and fair value of RM2.39/share, pegged to an FY21F PE of 24x. Our target PE multiple is in line with market-cap weighted average of local peer OSAT (outsourced assembly and test) players’ forward PE of 24x.

• We expect the group to register net profits of RM50mil, RM67mil and RM72mil respectively in FY20F–FY22F, representing earnings growth of 11%, 34% and 8% YoY respectively.

• GTB is principally involved in the production of smart sensors, quartz crystal timing devices (QCTD), assembly and wafer processing and die sorting of solid state lighting (SSL) / LED components, and production of integrated circuits (ICs) and small outline components.

• GTB’s key investment merits are as follows:

i) New generation smart sensors i.e. light, gesture and motion sensors will continue to lead growth;

ii) Ramp-up in laser automotive headlamps (as part of the SSL/LED business) a key focus in FY21; and

iii) Customer diversification and revenue enhancement opportunities arising from the US-China trade war amid ongoing negotiations.

• GTB’s recent 2QFY20 was impacted by the movement control order (MCO) limiting production capacity whilst also seeing lower volume loadings and supply chain adjustments from customers as the pandemic hit. However, 2HFY20 is expected to improve mainly based on better volume loadings anticipated for smart sensors, while other businesses continue to show normalization.

• We like GTB due to: (i) its strength in smart sensors with new generation sensors’ demand expected to drive growth; (ii) ramp-up in laser automotive headlamps to boost LED/SSD segment; and (iii) potential opportunities to be secured from the US-China trade war amid discussions, leading to customer diversification and revenue enhancement potential.

• However, we are cautious on a key risk which is the decline in end demand for consumer electronics affecting the sensor division outlook due to the worsening Covid-19 impact.

Source: AmInvest Research - 9 Oct 2020