Despite the weak 2Q18 results, which were largely anticipated, Globe’s 1H18 core net profit rose 85% yoy on higher sensor revenues. 1H18 sensor production volume was 3x over the same period last year, driven by higher gesture sensor volumes and contribution from the light sensors, which was absent in 1H17. We expect 2H18 to be significantly stronger, driven by sensor volume normalisation and on added capacity. Maintain BUY with a higher TP of RM3.56.

Sequentially Weaker in 2Q18, But Worst Likely Over

Globe’s 2Q18 revenue and earnings contracted for the second sequential quarter on softer sensor volumes as weak demand for its end customer’s products resulted in a curtailment of inventory in the supply chain. This was nevertheless only attributable to light sensors, a high volume product accounting for >60% of Globe’s sensor capacity. Production volume for its gesture sensors, which fit into wireless headsets, was not impacted by the inventory rebalancing. In short, light sensor volumes continued to taper from March through May 2018, although we understand that inventories are likely to have been fully worn down by end-2Q18.

Results Within Expectations – 1H18 Core Net Profit Up 85% Yoy

As sensor production volumes are still higher on a yoy basis, despite the weak 2Q18, 1H18 revenue and earnings registered growth of 40% and 85% yoy respectively. 1H18 EBITDA margin was significantly stronger at 26% (+5.1ppts yoy), driven ultimately by higher contribution from the sensor segment (sensor revenue in 1H17 was 15% compared to 42% for 1H18). Results are within our expectations, accounting for 28% of our forecast (33% of street’s). We expect a stronger 2H18 as production volume for its light sensors normalises, to meet demand for its customer’s new product launch in 3Q18 coupled with additional capacity for its gesture sensors, which would be key to the stronger 2H18.

Maintain BUY But With Higher Target Price of RM3.56

Maintain our BUY rating but with a higher TP of RM3.56 as we roll forward our valuation horizon to CY19 but based on an unchanged PER of 20x. We remain positive on Globe as the company positions itself as a niche sensor play. Meanwhile, its move into the assembly of automotive laser headlamp modules later this year could further re-rate its valuation multiples. Key risks to our call would be a sharp appreciation of the RM, a loss of customers or lower-thanexpected demand for its end customer’s smartphones.

Source: Affin Hwang Research - 1 Aug 2018