We met up with more than 60 investors in Taipei over a 2-day NDR. Generally, there seemed to be strong interest given Globe’s position in its US smartphone customer’s supply chain. Thus, investors were able to appreciate its sensor products and also Globe’s progress into VCSEL-related packaging. We reaffirm our BUY call and TP of RM8.

Sensor Volumes Reach 50m Units for November

Management updated its sensor production volumes, which hit 50m units in November (vs. 40m in September). This is driven by higher production volumes for the light sensor (32-33m units) and gesture sensor (11-12m units). December volumes appear to be stable and should sustain through January-February 2018. In comparison, Globe’s sensor production volume averaged 32m units in 3Q17 (4Q16: 6m units). This should also lead to a favourable product mix, with revenue from sensors rising to 39% in 2017E.

Capex Likely to Remain High for Another Year in 2018

Globe targets capex of up to RM60m for sensors in 2018E (our 2017E capex: RM103m). Its Austrian customer has requested an additional 20k sf of production floor space leading us to believe that Globe is on track to possibly secure an additional new sensor product going into 2018. This is aside from a 3D imaging sensor product for a China-based customer although volumes are not expected to be big (300k units per month). We have not modelled in any new sensors into our model for 2018E.

Other Divisions Doing Well Too

IRIS IR reflector volumes have recovered to 11m units in December after declining to 3-4m units in the previous months. Separately, production volumes for Soraa for general lighting are up to 170k units, and management targets to reach 300k units by 2Q18. Globe is still undergoing qualification for laser headlamps for 2 German automakers although after 2 years, things are looking up. Volumes for the timing devices have also expanded to 140m units per month, up from 120m units in October.

Reaffirm BUY Call and Target Price of RM8

With earnings momentum positive and strong, we continue to like Globe for its strong track record of earnings delivery. Globe is also well placed to benefit from additional outsourcing opportunities from its Austrian customer. We reaffirm our BUY call and 12-month TP of RM8, based on a 2018E PER of 20x. Globe remains one of our country top picks. Downside risks would be rapid appreciation of the RM and the loss of key customers.

Source: Affin Hwang Research - 12 Dec 2017