Globe recorded a weak set of results in 1Q19 although we believe that a subsequent earnings recovery would materialize, as in 2018. While we now expect 2019 revenue to be lower yoy, earnings should not be significantly impacted, benefiting from a favourable revenue mix. New sensor and non-sensor related products are in the pipeline, and would likely replace the revenue slack from its timing device business. We remain confident that management will steer the company and once again develop a new revenue driver for the group, ensuring that its strong earnings growth profile is retained. Maintain BUY.

Weaker Across All Segment in 1Q19

To recap, Globe’s 1Q19 earnings were weak, with nearly all key segments reporting a sluggish performance. The weakness in its sensor division was due to its light sensor product although its gesture sensor, which is designed into a wireless headset, has continued to be well received and production volumes remained robust. On the whole, we believe that sensor volumes will improve in the coming quarters due to seasonality.

Sensor Business Weaker in 1Q19 as Expected, a Pick-up Likely in 2Q

The timing device segment contributed to 30% of the group’s revenue in 2018. As contribution from this business is expected to possibly contract in the coming years, management has been actively working on several initiatives including new product introductions to cover the expected revenue shortfall. We expect several sensor and non-sensor products to be qualified in 2H19. Separately, contribution from Soraa Laser should also pick up with additional capacity.

Reaffirm BUY With Higher Target Price of RM2.57

Despite lowering our 2019-21 EPS estimates by 12-18%, we think that Globe still makes an appealing investment case given its increase presence as a niche sensor play. We also like its dynamic management team which has successfully steered the group, taking advantage of attractive business opportunities. We see the timing device business being replaced by another large-scale project that would likely sustain its earnings growth in the years to come. While the company undergoes some earnings consolidation, the risk-reward profile remains favourable. In addition, the 2019-21E dividend yields of 5-6% are attractive. Thus, we maintain our BUY rating but at a slightly higher TP of RM2.57 as we roll forward our valuation horizon.

Source: Affin Hwang Research - 14 May 2019