Light before the dawn

Maintain BUY with higher TP of RM4.60. We believe earnings visibility of Globetronics Technology (GTB) is improving with clearer signs supporting strong earnings recovery in FY17 from new sensor products (particularly gesture sensors and light sensors). This is also underpinned by the recent acquisition of GTB?s Swiss customer by Austria Microsystems (AMS), where details revealed by AMS are pointing towards substantial revenue growth for the Swiss customer starting mid-2017.

Still attractive. GTB?s share price has risen by 15% following our report on the gesture sensor in Sept 2016. Nonetheless, current share price is still significantly below the RM6.90 peak due to the share price correction following the loss of proximity sensor and non-commercialisation of the 3D imaging sensor in 2016. In our view, gesture and light sensors moving into mass production in 2017 is the first path towards earnings recovery for GTB as well as re-gaining investors? confidence in the stock. At our RM4.60 TP, GTB will be trading at 19.5x FY17 EPS, falling to a decent 12.3x FY18 EPS due to the strong growth in earnings.

Valuation

1Q17 will still be a weak quarter for GTB before earnings start to recover in May-June 2017 from the mass production of gesture and light sensors. To better reflect the earnings recovery in 2H17, we prefer to use a blended FY17/18 EPS pegged to a target PE multiple of 15x. Our revised TP is RM4.60 and implies 24% upside from current level.

Key Risks to Our View

Single-customer risk. GTB has only one customer for its sensor division. In addition, the sensor products are also supplied exclusively to a single end-customer. The fact that GTB is being included and has visibility of its customer?s product roadmap suggests that the relationship is strong.

Source: Alliance Research - 13 Jan 2017