Research houses downgrade Globetronics to 'hold' after weak quarter

KUALA LUMPUR (April 27): Affin Hwang Investment Bank and AmInvestment Bank on Wednesday (April 27) downgraded Globetronics Technology Bhd to "hold" from "buy" after the semiconductor firm registered lacklustre financial results for the first quarter ended March 31, 2022 (1QFY22).

Globetronics said on Wednesday that its net profit fell 24.65% to RM9.45 million for 1QFY22, from RM12.54 million a year earlier, as revenue dropped 23.04% to RM42.63 million from RM55.4 million.

“Despite a seasonally weak quarter, we deem the results to be below expectations in view of potentially weaker demand for its customer’s products ahead,” Affin Hwang Investment Bank analyst Kevin Low said in a note.

Thus, he cut his earnings per share forecasts for Globetronics for FY22 to FY24 by 14% to 18%.

He also downgraded Globetronics to "hold" from "buy", and lowered his target price (TP) to RM1.47 (from RM2.01) based on a revised target price-earnings (P/E) of 22 times (from 27 times).

The P/E is the average of the five-year mean P/E of larger outsourced semiconductor assembly and test (OSAT) players, such as Inari Amertron Bhd, Malaysian Pacific Industries Bhd and Unisem (M) Bhd.

“Amid investor expectations of higher interest rates ahead, the sector has seen a significant correction in P/E valuations year-to-date.

“As a result, we think that there are relatively better opportunities in the sector with better earnings growth profiles over the near term, especially after an anticipated sensor design win has been pushed back,” the analyst said.

AmInvestment Bank also lowered its FY22 to FY24 earnings forecasts for Globetronics by 6% to 25% as the company's 1QFY22 core net profit of RM9 million was below expectations, accounting for only 15% of the research house's earlier FY22 estimate and 17% of the consensus.

According to AmInvestment Bank, the lower profit projections are due to an assumption that the effective tax rate will resume at 24% (from 6%) for the group after the expiry of its pioneer status in June 2022.

The research house also downgraded its recommendation on Globetronics to "hold" from "buy", with a lower TP of RM1.53 a share (previously RM1.63).