Investment Highlights

• We maintain our BUY recommendation on Globetronics Technology (GTB) with unchanged 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 appraised (Exhibit 5).

• We have tweaked our FY21F and FY23F forecasts by +1% and -3% respectively to account for slight changes in volume assumptions for the group’s different product segments while FY22F forecasts remain unchanged.

• Key updates from GTB’s 1QFY21 conference call:

• Results summary: 1QFY21 core profit of RM11mil rose 16% YoY due to higher volume loadings for smart sensors and quartz crystal timing devices (QCTD) which led to better economies of scale. Meanwhile, core profit fell by 31% QoQ on lower volume loadings leading to smaller economies of scale mainly due to seasonality of sensor product volumes. The breakdown of GTB’s revenue by product is shown in Exhibit 1.

• 2QFY21 outlook: Its key sensor segment is expected to see overall soft volume loadings for the next quarter, where light sensor volumes are expected to decline by 15% at around 21mil units monthly while gesture sensor volumes are also expected to fall to 27mil units. Meanwhile, volumes for its motion sensor and QCTD products are expected to remain stable.

GTB’s power lighting products have thus far seen slight improvements in volume loading and are still expected to be one of the group’s key focus for FY21. Note that volume loadings for GTB’s sensor segment will be seasonally stronger in 2H of the year.

• Key updates: Mass production of GTB’s next generation light and gesture sensors are set for June and July 2021 respectively while production of its bio/environment sensor will begin in June/July 2021.

New projects under development are ongoing while supply constraints relating to the global semiconductor shortage are manageable with negligible impact to group margins. Additionally, the group’s expansion of its factory space by 30% (30K sqft) in Penang is also ongoing with targeted completion in August/September 2021.

• Business plans ahead: GTB continues to co-develop new generation sensors with its key Austrian customer and developing new key programmes with other customers. However, progress of the latter has been hampered by Covid- 19-related border closures. Meanwhile, the group continues to make progress for the qualification of additional power lighting products.

• We believe that GTB is undervalued at the current share price and that investors should take advantage of the recent price 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 - 3 May 2021