Globe posted a decent set of 4Q19 results on seasonal strength in its sensor business. Full-year earnings were broadly within our expectations, with core profit down 37% yoy largely due to lower revenues across most business segments including the loss at its timing device business although the favourable product mix contributed to improved margins. We expect 46% EPS growth in 2020 although this is largely priced in, in our view, given the forward PE of 24x. We maintain our Hold rating with a lower 12-month TP of RM2.40.

Sensor Strength Continues Into 4Q19, But Revenue Still Weaker Qoq

Sensor volumes remained robust in 4Q19, declining just1% qoq based on our estimates, despite the Christmas holiday period. The gradual ramp-up in the automotive laser module assembly business is also likely to have contributed positively. However, weakness in its timing device and wafer processing businesses is likely to have resulted in the 11% qoq decline in revenue.

2019 Results Broadly Within Our Expectations, Below Street’s

Globe’s 2019 core profit of RM46m (-37% yoy) was within expectations. The weaker earnings was due to the contraction in the timing device business. The 2019 EBITDA margin improved to 37.8%, up 4.5ppts yoy due to the larger contribution (as a % of revenue) from the higher-margin sensor division, which accounted for 55% of revenue (46% in 2018), even though a shift in the product mix of the division itself in favour of lower-ASP gesture sensors contributed to the weaker sensor revenue (-29% yoy).

Maintain HOLD Rating With Lower TP of RM2.40

Our 2020-21 EPS forecasts are reduced by 2-5% to take into account the 2019 financial statements and the supply chain disruption because of Covid- 19. We also introduce our 2022E EPS of 11.7 sen (+9% yoy). The strong 46% EPS growth in 2020E would be largely underpinned by growth in the sensor division and a ramp-up in the production of the automotive headlight business. In the sensor division, strong demand for a customer’s wireless ear buds has driven capacity expansion for the gesture sensor while we expect several new sensors (for both consumer electronics and non-consumer related applications) to drive earnings. However, Globe is trading at a 2020E PER of 24x, above its 5-year mean of 20x, but fair considering its likely stronger growth this year. We maintain our HOLD rating with a lower TP of RM2.40 (based on an unchanged 2020E PE of 24x). Risks include stronger-/lowerthan-expected demand for its customers’ products, new sensor products, stronger/weaker RM/US$ and speed of qualification of new customers.

Source: Affin Hwang Research - 25 Feb 2020