A better 2017, round the corner

We reaffirm our conviction call on Globe, a country top pick, after our recent visit. We learnt that the new light sensor although still going through the qualification process is on track, and increasingly likely to be designed into the final product. A new IR LED product for OSRAM is also in qualification and could be a catalyst in 2017. Globe also falls in Affin’s earnings-growth and yield themes. Reaffirm BUY.

Prospects of light sensor brightening

We recently met up with management to track development of the company’s new light sensor. Management affirmed that the qualification process was underway and that Globe was already building the third evaluation model and expects sample builds to turn up in the mock-up smartphone by January 2017. We believe that there are higher chances for this product to materialise (vis-à-vis its previous imaging sensor) considering that the light sensor is a relatively less complex component and does not require the integration (software and hardware) with other components within the device. Management also guided that the second light sensor (for non-smartphone related devices) is also on track for qualification by February 2017. This, in our view, makes sense, considering the 3-3.5 month equipment order lead time and gradual ramp up before the end customer’s typical product launch in 3Q.

Potentially new product for Osram in 2017

Globe could see further expansion of its LED division (26% of 9M16 total revenue, vs. 18% in 2015). Currently, it is already providing wafer sawing and die-sort services for an IR LED product for a Korean end customer, but undergoing qualification at a new customer. If this win were to materialise, it would positively contribute to the LED division. Its other customer Soraa has also seen volumes jump 50% yoy, albeit off a low base.

Reaffirm BUY and target price of RM4.88

On the flip side, volumes for the proximity sensors have continued to shrink to 2-3m units in December (from 8-9m/month) although we are uncertain if these run rates are due to seasonal weakness. We leave our forecasts unchanged for now and remain optimistic that the new sensors will more than compensate for any slowdown in existing operations. We reaffirm our BUY call and 12-month TP of RM4.88 based on a 2017E PER of 18x. Key risks include loss of customers or on-going projects that fail to materialise

Source: Affin Hwang Research - 22 Dec 2016