WHAT’S NEW

Globetronics’ share price fell 9% in the last 15 minutes before market close last Friday. This could be due to a news (link: https://asia.nikkei.com/Business/Companies/Apple-warns-suppliers-of-20-drop-in-new-iPhone-parts-orders) citing sources that Apple’s parts orders for upcoming IPhone models are 20% lower as compared to 2017.

COMMENTS

• Not a total surprise. This information is not totally new to the market as Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest dedicated independent semiconductor foundry, had already in Apr 18 slashed its 2018 sales target for premium smartphones, citing softer demand.
• Sensor volume production still up yoy. Despite the softer guidance from the premium smartphone supply chain players, Globetronics’ sensor volume production will still be up yoy in 2018. We believe there will likely be more than one of Globetronics’ endclient’s upcoming premium smartphone models to feature two light sensors per phone in 2018 (vs only one model in 2017) and gesture sensor production volume is picking up as the end-client would likely bundle wireless headphone to one of the upcoming models.
• Volume guidance remains unchanged. Globetronics has started to ramp up production of the new-generation light sensor last week. Production volumes for Jun-Aug 18 at 20m, 30m and 40m units respectively (Jun-Aug 17: 8m, 11m and 21m respectively, peak of 32m in Dec 17) remain unchanged from previous guidance. The sustainability of production volume post the ramp-up period would depend on consumer reception of the new smartphone models.
• Maintain BUY and target price of RM2.36, adjusted for the recent corporate exercise (pre-bonus and pre-split target price is RM5.60), pegged to 14.5x 2019F PE, or its mean PE.

Source: UOB Kay Hian Research - 11 Jun 2018