Investment Highlights

• We retain HOLD recommendation on Globetronics Technology (GTRONIC) with a higher fair value of RM1.36/share (from RM0.99/share), which implies a FY24F PE of 22x based on 1.5 SD above its 5-year historical mean given the recovery upcycle of semiconductor. We made no adjustment to our neutral 3-star ESG rating.

• Our forecast earnings are maintained as we deem results as largely within expectations even though 1HFY23 core net profit of RM7mil only accounts for 31% of our FY23F earnings and 22% of consensus. We anticipate a substantively stronger 2HFY23 demand, particularly from its sensors division, to drive earnings towards our projections.

• On the YoY basis, the group’s 1HFY23 revenue declined 29% due to sluggish volume loadings. This is due to lower contribution from assembly and testing of quartz crystal timing devices, partly offset by growth in wafer separation/die sorting services and assembly together with increased manufacturing of Solid State Lighting (SSL) and Light Emitting Diode (LED) components. This SSL/LED segment increased to 24% of 2QFY23 total revenue from 19% in FY22.

• The lower economies of scale from a plant utilisation of 66% and increased labour costs cut GTRONIC’s 1H2023 EBITDA margin by 11%-point to 24.6%. Together with a 21%-point increase in effective tax rate to a normalised 26.6%, 1H2023 core net profit fell 66% YoY.

• On the QoQ basis, despite softer volume loadings from customers, GTRONIC’s 2QFY23 core net profit rose by 25% to RM4mil, thanks to enhanced operating efficiency, with slight improvements in gross margin and higher operating income.

• The group emphasised that the sensor division is expected to be the main contributor to FY23F revenue, mainly due to the launch of new models in 2HCY23. GTRONIC has several projects in progress, including the development of next generation sensors for its consumer product segment and the implementation of advanced packaging manufacturing solutions for both new and existing customers.

• Additionally, GTRONIC is proactively pursuing partnerships with potential customers from China and Taiwan as part of its FY24F growth plan, aiming to diversify its clientele base.

• We continue to view the group’s outlook favourably, and note that lower volume loading from key customers due to the downcycle of sector sentiment could be transitory in nature. Even so, we opine GTRONIC’s valuations look fully valued at the current level of 26x FY24F PE, which is near its 5-year peak of 25x.

Source: AmInvest Research - 26 Jul 2023