Investment Highlights

• We maintain our BUY recommendation on Globetronics Technology (GTB) with a lower fair value of RM2.36/share (previously RM2.84/share), pegged to 24x FY22F PE. We make no adjustment to our 3-star ESG rating (Exhibit 3).

• We have reduced our FY21F–FY23F earnings forecast by 35%, 21% and 26% to RM45.6mil, RM62.5mil and RM66.5mil respectively, mainly to take into account of lower-thanexpected volume loadings in the sensor business, as well as projected higher tax expenses moving forward.

• Discontinuation of quartz crystal timing device (QCTD) business. GTB has decided to end the business cycle for QCTD in December 2021 due to a key customer’s pricing pressure. The group does not expect a significant impact to its bottom line as QCTD carried low margins and most machineries were already fully depreciated. Meanwhile, the KL factory will be vacant for now with management actively seeking to fill the excess capacity.

• Margin expected to improve moving into FY22. Following the discontinuation of the lower margin QCTD business, we expect the group’s net profit margin to improve by 8 percentage points. In addition, the volume for the higher margin laser lighting business is expected to double starting February 2022.

• End of pioneer status. The group’s pioneer status will expire on June 2022. However, the impact will be partially cushioned by its unabsorbed tax allowance, which we have factored in into our FY22F forecast.

• Outlook: We expect the group’s key sensor segment to remain soft in 4QFY21, with flattish growth YoY, as its key customers are still caught in the ongoing supply chain disruption. Furthermore, GTB’s factory expansion plan is delayed to March from the initially planned January, further impeding its growth potential in FY22.

• Nevertheless, we believe GTB is undervalued at the current price and investors should take the opportunity to accumulate the stock. We continue to like GTB due to: (i) its robust margin arising from its sensor business (~60% of total group revenue); (ii) strength in smart sensors, with new generation sensor demand expected to drive growth ahead; and (iii) ramp-up in laser automotive headlamps to boost its LED/SSL segment.

Source: AmInvest Research - 6 Jan 2022