INVESTMENT HIGHLIGHTS

• FY16 earnings negatively impacted by significantly lower demand from customers

• Cumulative results consist only 83.9% of FY16 full year earnings estimate

• Expecting dividend yield to be at least 4.5%

• Maintain NEUTRAL with a revised target price of RM4.65 per share based on DDM valuation methodology

Weak 4Q16 earnings. Globetronics Technology Bhd (GTB) reported 4Q16 earnings of RM6.4m. After excluding unrealised gain on foreign exchange amounting to RM4.0m, 4Q16 normalised earnings came in at RM2.4m, a decrease of -81.1%yoy. The drop in earnings was mainly attributable to lower revenue recorded in the review period as a result of reduction in end customers’ demand.

Below expectation. The lower 4Q16 normalised earnings led to lower FY16 normalised earnings of RM23.8m (-63.5%yoy). This came in below our and consensus expectations, accounting for 83.9% and 87.2% of FY16 full year earnings estimates respectively.

Impact on earnings. Despite lower FY16 earnings, we maintain our FY17 earnings estimate at this juncture. We are expecting demand from its end customers to pick up pace towards the end of 2Q17, particularly for its sensor products after experiencing several rounds of delay. This should spill over into 2H17.

Dividend. On cumulative basis, a total dividend of 18sen per share has been declared for FY16 thus far. We are expecting the group to declare a final dividend of 2sen per share in April 2017. As such we maintain our FY16 dividend estimates of 20sen per share. However, we raise our FY17 dividend assumption to 21sen from 18sen previously. This is supported by the group’s healthy net cash position of RM165.6m as at 4Q16.

Target price. Following the revision to our dividend estimates, we revised our target price upwards to RM4.65 per share from RM3.64 per share previously based on DDM valuation methodology.

Maintain NEUTRAL. We are perturbed with the soft volume loading of GTB products which prolong throughout 2H16 which has impacted the group’s full year FY16 earnings. Nonetheless, we view that the mass production of the new sensors components could only be seen towards the end of 1H17 to cater for smartphone launches later this year. In addition, we view that the stock commands a dividend yield of at least 4.5%, which is rather attractive as compared to its peers. All factors considered, we maintain our NEUTRAL recommendation on GTB.

Source: MIDF Research - 24 Feb 2017