Investment Highlights

• We maintain our BUY recommendation on Globetronics Technology (GTB) with a lower fair value of RM1.63/share, pegged to a normalised 18x FY22F PE (previously RM2.36/share pegged to a higher FY22F PE of 24x). The target PE represents GTB’s 3-year average forward PE and implies a 10% discount to our benchmark target PE for outsourced semiconductor assembly and test (OSAT) players of 20x given GTB’s smaller market capitalisation.

• GTB’s 4QFY21 core profit of RM17mil came in within consensus and exceeded our expectations, bringing FY21 core profit to RM51mil, after excluding a one-off reversal of inventories written down of RM2mil. This was 1% above consensus and 12% above our estimates. However, we maintain our forecasts as the effective tax rate is expected to increase following the expiry of its pioneer tax status this year.

• The group’s FY21 sales declined 23% YoY to RM206mil, primarily due to lower volume loadings from its customers in the sensor business. However, the group’s FY21 PBT margin was able to improve 4% points to 27%, thanks to better product mix.

• We expect GTB’s margin to continue improving, following the group’s decision to discontinue its quartz crystal timing device (QCTD) business in 4QFY21, which historically carried lower margins.

• Moving into FY22F, GTB’s key sensor segment growth is expected to remain soft as its key customers are still caught in the ongoing supply chain disruption. Furthermore, the completion of GTB’s factory expansion will be delayed to mid-April 2022 from the initially planned January 2022, further impeding this division’s growth potential.

• To recap, the group’s current tax incentives (pioneer status) will expire on June 2022. However, the impact will be partially cushioned by an unabsorbed tax allowance, which we have factored into our FY22F assumptions.

• GTB’s outlook continues to be driven by the codevelopment of next-generation sensors with its customer. However, we remain cautious on its progress amid travel restrictions and lockdowns arising from new Covid-19 variants, which hinder site certifications and qualifications by potential customers.

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  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 its: (i) robust margin arising from its sensor business which consistently accounts for 60% of total group revenue; (ii) strength in smart sensors with new generation demand expected to drive growth ahead; and (iii) riding on the growing automotive segment by ramping up laser automotive headlamps in its solid state lighting/light emitting diode division.

Source: AmInvest Research - 23 Feb 2022