A Weak Start Price Chart (RM) Globetronics Technology Berhad (GTB) 1Q23’s core profit of RM3.0mn (QoQ: -79.2%, YoY: -66.3%) was below our and consensus estimates accounting for only 8% and 7% of full year forecast. This was primary due to lower volume loadings from sensors products - accounting 55% of revenue, higher input costs, an increase in tax expense, and unfavourable forex movement. While we expect better performance in 2H due to seasonality factor, we foresee GTB’s outlook to be challenging in 2023 given softer outlook within the global consumer electronics. We cut our 2023F-2025F earnings forecast between 5% - 10% in line with new revenue and tax rate assumption. Maintain a HOLD call at a lower TP of RM1.03 (from RM1.15). Our valuation implies a 21x PER (1-SD below mean of 5-year average historical forward PER) pegged to 2023F EPS of 4.9 sen.

• Below expectations. GTB’s 1Q23 core profit of RM3.0mn (QoQ: -79.2%, YoY: -66.3%) trailed our and consensus’ expectations, accounting for only 8% and 7% of full year forecast.
   
• Dividend. GTB declared a third interim DPS of 2 sen for FY22 and paid on March 23, 2023.
   
• QoQ. Core profit fell by 79.2% QoQ primarily due to weaker revenue in 1Q23 owing to lower volume loadings from certain customers which saw a significant drop in orders for sensors (-23% QoQ) and LED (-26.9% QoQ) products, subsequent to the seasonality factor of weaker 1H and lower demand for consumer electronics. EBITDA margin contracted by 25.8 ppts to 22.5% in 1Q23 as a result
   
• YoY/ YTD. Core profit plunged by 66.3% YoY due to 1) lower sales across all products (except for IC), with sensors which made up 55% of revenue which declined by 22.3% YoY, affected by softer demand for consumer electronics globally i.e., smartphones and wearables(smartwatch, earwear), 2) higher input cost due to an increase in electricity tariff and labour cost, 3) a rise in tax expense subsequent to the lapse of tax incentive for GTB’s sensors business (effective tax rate for 1Q23: 36.9%, 1Q22: 6.3%), and 3) unfavorable forex loss of RM65k in 1Q23 versus forex gain of Rm0.5mn in 1Q22.
   
• Outlook. While we expect a better performance in 2H due to more orders for sensors products i.e., smartphones, smartwatches, and earpieces, we foresee GTB outlook to remain challenging in 2023 given softer outlook within the global consumer electronics.
   
• Forecast. We cut our 2023F/2024F/2025F earnings forecast by 10%/5%/5% in line with lower revenue projection and higher effective tax rate assumption.

• Our call. Maintain a HOLD call though at lower TP of RM1.03 (from RM1.15) in line with earnings revision.

Source: BIMB Securities Research - 3 May 2023