• 2Q20 earnings fell 55% qoq on the back of lower sensor production volumes. The timing device business was also hit by the shutdown during the MCO.
• 6M20 results, despite at only 24% of our full-year earnings, are deemed inline. We expect 2H20 to be seasonally stronger.
• Maintain our Hold rating and TP of RM2.26.

2Q20 core net profit down 55% qoq dragged by weaker sensor volumes

We estimate that sensor production volumes were softer in 2Q20, declining 6% qoq on the back of lower volume loadings for its light and gesture sensors, partially due to seasonality. Notably, production volumes for both sensors were however higher on a yoy basis, contributing to the better overall financial results, in 2Q20. Meanwhile, the timing device business was also impacted during the MCO as it did not receive MITI approval to operate. With lower production levels, profitability of this segment is likely to have also been impacted during 2Q20.

6M20 core profit higher by 18%, within expectations

Globe’s 6M20 core profit was higher by 17.5% yoy due to better sensor volumes, but also because 1Q19 was also an exceptionally weak quarter. Although sensor volumes have grown considerably yoy for 6M20, its timing business saw further declines as the business was scaled down. However, there are some signs of stability for this business as we understand that the customer is unable to further consolidate the business at its own facility. Overall, 6M20 results were within expectations, accounting for 24% of our and street’s 2020 estimates. We expect a strong 2H20 on seasonally stronger sensor production volumes. Notably, 6M20 EBITDA margin improved 4.1ppt yoy to 31.6% largely due to the higher contribution from the higher-margin sensor products while the lower-margin timing device business has been scaled down.

Maintain HOLD and TP of RM2.26

No changes to our forecasts and TP of RM2.26, based on a 3-year mean PE of 25x on our CY21E EPS. We think that risk-reward is fair for now considering that growth may be less exciting over the near term. However, better-than-expected demand or a bundling strategy for its customer’s wireless ear buds may lead to volume upside surprise. Other risks include stronger/weaker-than-expected demand for its customers’ products, new sensor products, a weaker/stronger RM/US$ and more qualification of new customers.

Source: Affin Hwang Research - 29 Jul 2020