- Strong share price run-up in less than a year. Since our Trading Buy call on 17 Oct 2013 at RM3.04, Globetronics Technology (GTB) has surged by 44.1% to RM4.38. This has clearly outperformed the benchmark FBM Small Cap Index, which only advanced by 17.8% to 18,353.9 over the same time period.
- Resilient medium-term prospects with sensors products to be the key growth driver going forward. We see GTB’s medium-term earnings prospects to remain resilient mainly driven by its sensor products. Recall that since GTB started to supply this new products, namely proximity sensors (used to extend battery life in Smartphones/Tablets (S/T)) to a Swiss customer back in 2012, its bottomline improved to a 2-year CAGR of 40% to RM52.6m in FY13 thereafter on the back of new increased capacity, stable growth across other products range coupled with higher EBITDA margin contributed by proximity sensors. Now, with the S/T trend leaning towards proximity, gesture and imagebased user interfaces which the group has already started to codevelop and mass produce the multi-port proximity/gesture/image sensors, amid the sustainable demand in its Timing Devices and LED segments and the recovery of the semiconductor industry, we believe that the group could achieve another decent 2-year CAGR NP of 19% to RM65.2m in FY14 and RM74.0m in FY15 respectively.
- Strong balance sheet and net cash position to support its minimum 50% dividend payout policy. The group is in a net cash position of RM131m as at 1Q14. We understand that GTB intends to maintain a minimum DPR of 50%. If we were to conservatively assume a low end DPR of 75% based on its latest 3 years historical DPR (ranging from 72% to 90%), this will come up to a FY15E DPS of 19.8 sen, translating into a decent dividend yield of 4.5%, based on our FY15E EPS.
- However, current valuation appears over-stretched. While the group’s earnings prospects remain resilient, in terms of valuation however, GTB is currently trading at a consensus’ forward PER of 16.7x which is at a hefty 34% premium to the FBM Small Cap forward PER of 12.5x and c.5% premium to its peers’ average forward PER of 15.0x. Even with our new TP of RM4.23 (after we rolled over our valuation parameter to FY15E based on 16.0x forward PER which is at a +2SD level above its 3-year average forward PER) coupled with estimated dividend yield of 4.5%, the upside is still limited from here. Judging from all the parameters mentioned above, its current valuation appears to be over-stretched. Hence, we advocate investors to take profit for now and re-accumulate on price weakness should such opportunity emerges.
Source: Kenanga
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