Investment Highlights

• We maintain HOLD on Globetronics Technology (GTB) with a higher fair value of RM2.84/share, pegged to a rolledforward FY22F PE of 24x (previously RM2.39/share, pegged to an FY21F PE of 24x). We lower our FY21F–FY22F forecasts by 2% after tweaking our interest assumptions.

• The target PE represents a 15% discount to our benchmark target PE for outsourced semiconductor assembly and test (OSAT) players of 28x due to GTB’s smaller market capitalization. The benchmark PE is at a 20% premium above the 3-year historical forward PE of 23x as prospects brighten due to innovations such as 5G, 3D sensors, and electric vehicles, which progress has been accelerated by Covid-19.

• GTB’s 4QFY20 came in below expectations at a core profit of RM17mil, bringing FY20 core profit to RM49mil after excluding a RM2mil net one-off gain mainly from amortization of deferred income and gain on disposal of PPE. The results missed both our and consensus’ estimates by 8%. The variation was due to weaker-than-anticipated 4Q earnings amid one of its customer’s annual year-end factory shutdown which lasted 4 days.

• YoY: FY20 core profit rose 10% due to: (i) 5% higher revenue on higher volume loadings seen for certain customers; and (ii) better economies of scale following the group’s volume linearization strategy for its sensor products, leading to improved GP margin of 38% (vs. 34% in FY19).

• QoQ: Both 4QFY20 core profit and revenue declined by 4% due to lower volume loading from certain customers due to year-end factory shutdown aforementioned and an impairment loss on PPE of RM0.7mil.

• Outlook: The group shared that financial performance will continue to be impacted by Covid-19 effects depending on the severity of cases, i.e. factory shutdowns impacting production, and disruption in its supply chain amid travel restrictions and lockdowns, which have caused potential customers to face difficulties in conducting site certifications and qualifications, leading to a delay in certain projects.

• While we continue to like GTB, we deem that its prospects have been fairly valued. GTB’s positive prospects arise from: (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.

Source: AmInvest Research - 25 Feb 2021