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 the company’s 5-year historical mean valuation. We made no adjustment to our neutral 3-star ESG rating.

• We made no changes to our earnings forecast as the company’s FY22 core net profit is in line with our expectations. We introduce FY25F earnings at RM59mil, premised on a revenue growth of 6.5% and stable pretax margin of 25%.

• The group’s FY22 core net profit of RM45mil (-12% YoY) came in 2% below our FY22F core earnings but 10% above consensus estimate.

• The group reported lower revenue of RM180mil (-13% YoY), due to sluggish volume loadings. However, the weaker sales impact was partially offset by better sales mix following the discontinuation of its low-margin quartz crystal timing components. Notably, the group’s FY22 gross margin expanded by 2%-points YoY to 42%.

• On QoQ basis, GTRONIC’s 4QFY22 core net profit grew by 50% despite the lower revenue (-5%), thanks to the improvement in gross margin (+13%-point). The group’s operating costs also declined 25% sequentially, providing an additional boost to earnings.

• The group declared an interim dividend of 2sen/share, bringing its cumulative FY22 dividend to 7sen/share. This slightly exceeds our forecast of 6.6 sen/share.

• 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. We are projecting that some of the new products will be commercialised starting at the beginning of 2023 to support the group’s future sales.

• We believe the stock is fairly valued at the current level of 15.7x FY23 PE (near its 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 - 22 Feb 2023