While results were below our expectations, the key takeaway from the 4Q17 results was that revenue, EBITDA margin and core earnings were at their historical high. Earnings are also closer to the RM25m/quarter mark, and hence earnings momentum is on track to achieving our full year 2018E profit forecast of RM114m (+116% yoy). The key earnings driver remains the sensor business which is expected to see revenue contribution jump from c.40% in 2017 to 60% 2018. We reaffirm our BUY rating and TP of RM8 (based on 20x 2018E EPS).

4Q17 Net Profit Jumps 74% Qoq and Up 8-fold Yoy

Globe reported stronger revenue and earnings in 4Q17 as production volumes for the sensor business were higher and in the region of 48-50m units per month in 4Q17, up >33% qoq. The better profitability from the sensor business also contributed to the strong 74% qoq and 710% yoy growth in core profit. Nevertheless, despite the better 4Q17, full-year earnings fell short of our expectations – accounting for 87% of our 2017E forecast (100% of street) due to higher-than-expected depreciation charges. This was driven by an increase in capex spending in 2017 (RM106m vs RM8m in 2016) predominantly for the sensor business.

Forecasting 116% Earnings Growth in 2018E

We nevertheless leave our 2018-19E EPS relatively unchanged and expect 4Q earnings momentum to be sustained into 2018. This implies a 116% earnings growth for 2018E, which will be predominantly fuelled by full-year contribution from higher production volumes for the sensor business. While we have not modelled in for any new major sensor product wins in 2018, we continue to believe that Globe will benefit from its longstanding relationship with its Austrian customer, which itself has recently guided for a strong 2018- 2019 revenue CAGR of 60%.

Reaffirm BUY Call and Target Price of RM8

We reaffirm our BUY rating and 12-month TP of RM8, based on 20x 2018E EPS. Globe is a country top pick as well as one of Daiwa’s top global tech picks for 2018. Re-rating catalyst for the stock include new sensor product wins, which the street and ourselves have not priced into 2018E earnings. Key downside risks to our call would be a sharp appreciation of the RM, a loss of customers or lower-than-expected demand for its end customer’s smartphones.

Source: Affin Hwang Research - 28 Feb 2018