• Globetronics (GTB) 1Q18 earnings surged by more than 100% yoy owing to resumption in orders since 3Q17. However, earnings fell 46% qoq on slower demand in Mar 2018 and strong ringgit.
• Overall, 1Q18 core earnings were inline with our estimates at 25% but trailed consensus’ estimates at 22%.

• We remain cautious over its prospects on lower demand that should see orders easing further in Apr and May 2018.

• Maintain our SELL recommendation with a TP of RM3.10 based GGM formula that implies fair EV/ROIC multiple of 6.9x (WACC: 9.5%, terminal growth rate: 3%).

Earnings surged yoy

GTB’s 1Q18 earnings surged >100% yoy. This is due to higher revenues which rose 73.6% as orders resumed since 3Q17. Overall, 1Q18 core earnings came inline with expectation making up 25% of our estimates but trailed consensus at 22%.

Qoq declined

Earnings fell 46% qoq in tandem with lower revenue which fell 18% qoq. This was due to lower volume loadings from certain customers in Mar 2018 and the strong ringgit which led to forex loss of RM872k.

Softer business ahead

Moving forward, the company guided for lower production in Apr and May 2018 due to lower end-customer demand‘s and the need to deplete existing inventory in the supply chain. However, GTB expects volume loading to pick up by Jun 2018 with manufacturing of new products.

Maintain SELL at TP of RM3.10

We maintain our SELL recommendation with a TP of RM3.10 (WACC: 9.5%, terminal growth rate: 3%) which implies 18.5x FY18F PE and 16.6x FY19F PE. We remain cautious over its near term prospects amidst slower end product demand for its end client as well as intense competition within consumer segment.

Source: BIMB Securities Research - 25 Apr 2018