Investment Highlights

• We downgrade our recommendation on Globetronics Technology (GT) to HOLD from BUY with a lower fair value of RM1.53/share (previously RM1.63/share), pegged to an unchanged FY22F PE of 18x. We make no price adjustment based on our 3-star ESG rating.

• Our target PE represents GT’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 GT’s smaller market capitalisation and lower growth prospect.

• However, we have reduced our FY22F–FY24F earnings by 6%–25% as GT’s 1QFY22 core net profit of RM9mil was below expectations, accounting for only 15% of our earlier FY22F estimate and 17% of consensus’. As a comparison, 1Q accounted for 23% of FY21 core earnings.

• The lower profit projections are due to our assumption that the group’s effective tax rate will resume at 24% (from 6%) after the expiry of its pioneer status on June 2022.

• Southeast Asian revenue, which contributed 97% to the group’s 1QFY22, declined 22% YoY to RM41mil. This is due to GT’s continuing to be impacted by lower volume loadings from its key customers in the sensor business.

• GT’s 1QFY22 core profit declined 45% QoQ to RM9mil as lower volume loadings from key customers further affected GT’s quarterly performance. Evidently, we see an apparent diseconomy of scale reflected in its 1QFY22 EBITDA margin, which was cut by 10% points QoQ to 36%.

• Growth for the group’s key sensor segment, which historically contributed more than 60% of the group’s revenue, is expected to remain soft until 1HFY22 as key customers are still caught in the ongoing supply chain disruptions.

• GT has multiple projects in the pipeline, which include next-generation optical sensors for advanced driver assistance systems (ADAS) in vehicles as well as robotic systems. However, management does not expect the new products to be commercialised at least until the end of 2022.
• While we continue to view the group’s outlook favourably, and note that lower volume loadings from key customers due to supply chain bottlenecks are transitory in nature, we opine that GT is fairly priced currently at a FY22F PE of 17x, near its 3-year average of 18x. The group’s positive prospect will depend on its project delivery of next generation sensors, where the segment is rapidly expanding at a projected compounded annual growth rate (CAGR) of 28% from 2021 to 2030, according to Allied Market Research.

Source: AmInvest Research - 27 Apr 2022