After months of waiting, mass production of Globe’s new light sensor has begun and is ramping up nicely, based on our talk with management. Earnings from this new sensor should be significant from this year, given the volumes and ASPs. On the whole, sensorproduction volumes in 2017 should surpass 2015 peak levels (recent record earnings) by 18% and underpin our 203% yoy EPS growth in 2017E, albeit off a low base. Reaffirm BUY with a higher TP of RM8.

Exponentially Strong 2H17E Earnings in Sight

We sense that investors are still a little sceptical on Globe’s earnings visibility going into 2H17E. With only RM5m in profits booked in 1Q17, or 7% of our full-year forecast, our 2017E profit of RM77m may appear stretched. We, nevertheless, expect exponential earnings growth for 2H17E, underpinned predominantly by the new light sensor. New capacity for the gesture sensor will likely be an additional earnings catalyst.

Contribution From the Light Sensor Will Likely be Significant

The light sensor should be a significant contributor to revenue and earnings, accounting for 69% of our sensor revenue in 2017E (which in turn, accounts for 59% of group revenue). This is largely due to the higher production volumes (2 different light sensors with one each used in the smartphone and tablet) and higher ASPs, which is over 50% more when compared to its other sensor chips, given its design complexity (comprising a die and an ASIC chip). Based on our forecast revenue of RM129m for the light sensor this year and estimated net margins of 31- 32%, the light sensor alone accounts for 52-54% of our 2017E earnings.

Reaffirm BUY With a Higher Target Price of RM8

We leave our 2017-19E earnings unchanged, for a 2016-19E earnings CAGR of 71%. This robust growth is underpinned largely by its existing sensor-product range and, thus, leaves the possibility of earnings upside risk should there be further successful execution of new sensor products and upside for the gesture sensor (via the bundling in of the wireless headset into the entire smartphone product range). As we roll forward our valuation basis, we raise our 12-month TP to RM8.00 (from RM5.75), based on a 2018E PER of 20x (from 2017E PER of 21x), inline with its past-5-year average forward PER. Reaffirm Buy. Key risk: customer loss.

Source: Affin Hwang Research - 6 Jun 2017