Sensor volumes will likely be weaker in 1Q18 and bottom out in 2Q18 due to soft demand for its US customer’s smartphones. However, we do not believe that earnings will collapse like in 2016, when sensor volumes dwindled. We cut our 2018E EPS by 23% but still expect earnings growth of 67% yoy. We forecast 2018 sensor production volumes to be 74% above that in 2017 (and >3x that in 2016). Hence, the 35% stock price correction ytd (-20% over the past week) looks overdone in our view, as the 2018E PE multiple is looking extremely attractive at 15x, while the company’s earnings growth trajectory is likely to remain strong. Maintain BUY.
Globe’s light sensor production volumes will likely be softer in 1Q18, but bottom out in 2Q18 with a monthly production volume of 14m units, resulting in a 23% and 45% qoq contraction in overall light sensor volumes in 1Q18 and 2Q18 respectively. On a positive note, Globe’s sensor customer is guiding for even stronger light sensor volumes in 2H18, which should compensate for some of the slack in 1H18. Moreover, volumes of Globe’s other sensors – gesture, proximity and motion sensors for wearable products – are holding up well and should soften the blow of the weaker light sensor volumes (>60% of sensor production volume). We expect production volumes for the overall sensor business to contract 16% and 29% qoq for 1Q18 and 2Q18 respectively, before a recovery in 2H18.
We revise lower our average forecast for the monthly production of sensors to 47m units in 2018E from 56m units previously. This represents a 16% downward revision, but still a 74% growth over the 2017 production. Our 2018- 20E EPS are cut by 23%/4%/5% respectively to account for the change in the light sensor volume forecasts, depreciation charges and a revision in our RM/US$ assumption.
We maintain our BUY rating but with a lower TP of RM6.16 (based on an unchanged 2018E PER of 20x). In our view, the current stock price pullback provides an attractive entry point for the stock as PE valuations are >-2SD below its 5-year mean.
Source: Affin Hwang Research - 27 Mar 2018
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