Globe is projected to deliver an EPS growth of 46% in 2020E after a low base in 2019 on the back of stronger production volume for its gesture sensor, a ramp-up in its laser headlight module business and maiden contribution from its new gas sensor product. This will more than compensate for the slowdown in the timing device and LED divisions. However, at a forward PER of 23x, we think that most of the good news is already in the price. In our view, Globe will need to secure new products to ensure that convincing growth is sustained into 2020-21, before any further PE multiple expansion is warranted. Maintain Hold.

New year, new products and new customers

Globe will start 2020 on a positive note with a new sensor product for a wearable device. Commercial production also commences for an environment gas sensor for a new German customer. Including capacity upgrades for its gesture sensor, we think that the sensor division will be kept relatively busy in 2020.

Laser headlight ramp to begin

Growth for the laser headlight module assembly business has pretty much been constrained by its customer’s wafer supply in 2019. With this issue addressed, prospects for the business doubling in 2020E (albeit off a low base) looks plausible. Thus far, supply of these modules has been limited to a single car manufacturer and for the premium range. With lower cost points, adoption of this technology in the mass market models seems likely.

Growth to recover in 2020

We project a revised EPS growth of 46% for 2020 after a 14% cut in our 2019E EPS. Despite building in preliminary revenue and profit contributions from the gas sensor into our 2020-21E EPS forecasts, we have also cut the contribution from the timing device business, expecting this to phase off by 2H 2021.

Fairly valued at RM2.52, maintain Hold

Stock is currently trading at a forward PE multiple of 23x, slightly above its 5- year mean of 20x. The shares traded as high as 32x in August 2018, in a year for which the company recorded an equally strong net profit growth of 37%. In our view, PE valuations may overshoot in the near term, but we think that any sustainable PE expansion will likely only be accompanied by sustained earnings growth going into 2021. This can only be achieved with new products with large volumes. Maintain Hold but with a higher TP of RM2.52 based on a higher target PE multiple of 24x on 2020E EPS (from 20x).

Source: Affin Hwang Research - 16 Jan 2020