A recent news article quoting Globe’s CEO said that the company has secured 3 projects for 2018, and is negotiating for another 2. The first 3 projects relate to the next generation current light and gesture sensor products and a new imaging sensor for a new customer. The news provides stronger visibility and earnings certainty for the group, an issue we think most investors still have on the stock. We estimate the revenue contribution from sensor division to increase from 43% in 2017E to 60% in 2018E driven by a 107% yoy increase in the average monthly sensor production volumes. Based on the higher sensor volume and profitability, we expect Globe to register record earnings in 2018. Positive catalysts include ramp up in new sensors and products. Maintain BUY. Globe is our top tech pick.

Sensor Business Locked in for 2018

We think that the recent comment by Globe’s CEO on its sensor division and its 3 new projects provides good earnings visibility. The next generation sensors designed for the North US customers 3Q18 product launch, provides good earnings certainty for the rest of 2018, in our view. We also like that its Austrian customer is moving beyond the North US customer, providing some semblance of risk diversification.

Mass Production of Laser Headlamps Looks Near

Aside from sensors, we think 2018 could be the year of mass development of automotive laser headlights for Soraa. Globe has been undergoing qualification for 2 major German automakers, and with lower cost of production and improved cost benefits, there is increasing likelihood for this technology to be adopted in mass automotive models. This could be an additional catalyst to Globe’s earnings, should production surprise to the upside.

Maintain BUY and TP of RM8

We have pencilled in a capex of RM55m for 2018E, although we would not be surprised to see an upward revision, should there be further project wins or ramp up in production capacity. The latter could be sparked off by the product bundling of the wireless headset with the final product (a move we have been anticipating from the North US customer), in which the gesture sensor is used. We maintain our BUY rating and 12-month TP of RM8 based on 20x 2018E PER. Key risk includes a rapid appreciation of the RM and loss of key customers.

Source: Affin Hwang Research - 15 Jan 2018