Investment Highlights

• We retain our HOLD recommendation on Globetronics Technology (GTRONIC) with an unchanged fair value of RM1.12/share, derived from a target FY23F PE of 16x. This unchanged target PE is based on -0.5 SD from 5-year mean on the account of the company’s lower growth prospects with no adjustment to our neutral 3-star ESG rating.

• We made no changes to our earnings forecast as the company’s 9MFY22 core net profit of RM30mil (-12% YoY) is broadly in line with our estimate.

• The group’s 9MFY22 result account for 65% of our FY22F core earnings and 63% of consensus estimate. As a comparison, GTRONIC’s historical 9M core net profit accounted for 65%-67% of full-year results over the past 3 years.

• Notably, the group’s 9MFY22 gross margin expanded by 2%-points YoY to 39%, largely due to the discontinuation of low-margin quartz crystal timing components. However, the lower revenue of RM136mil (-13% YoY), due to lower volume loadings, more than offset the margin improvement.

• On QoQ basis, GTRONIC’s 3QFY22 core net profit declined by 6% in line with lower revenue (-3.4%). The lower volume loadings from key customers also led to the deterioration of the company’s operating leverage. The impact is reflected in the sharp compression of gross margin (-3.6%- points).

• In line with expectations, no dividend was declared during the quarter. Historically, the company declared interim dividends in 1Q, 2Q and 4Q.

• The company 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, we do not expect the new products to be commercialised at least until the end of 2022.

• We believe the stock is fairly valued at the current level of 15.1x FY23 PE (near its -0.5SD of 5-year mean) given the softer outlook in its sensor business as key customers are still caught in supply chain bottlenecks, leading to lower volume loadings. This is supported by decent FY22FFY23F dividend yields of 6%.

Source: AmInvest Research - 26 Oct 2022