INVESTMENT HIGHLIGHTS

• 1Q17 normalised earnings negatively impacted by significantly lower demand from customers

• Expecting healthier volume loadings from 2Q17 onwards

• FY16 dividend better than expected

• Maintain NEUTRAL with a revised target price of RM5.32 per share based on DDM valuation methodology

Seasonally weak 1Q earnings. Globetronics Technology Berhad (GTB) reported 1Q17 earnings of RM4.7m. After excluding unrealised loss on foreign exchange amounting to RM0.2m, 4Q16 normalised earnings came in at RM4.9m, a reduction of -29.8%yoy. The decline in earnings was mainly attributable to lower revenue recorded in the review period as a result of reduction in end customers’ demand.

Within our expectation. The 1Q17 normalised earnings account for 12.0% and 8.1% of ours and consensus’ earnings estimates respectively. Despite the subdued quarterly performance, this came in within our expectation as we expect much stronger volume loading in 2Q17 and 3Q17, which will significantly boost the group’s topline contribution.

Revenue. GTB‘s 1Q17 revenue declined by -15.2%yoy to RM49.8m. This was mainly due to a -58.2%yoy decreased in revenue contributions from Singapore. Fortunately, this was partially supported by higher revenue contribution from Malaysia (+10.6%yoy).

Impact. We maintain our FY17 earnings estimate at this juncture. However, we raised our FY18 earnings estimate by +9.0% as we are assuming a higher revenue contribution from the sensor division.

Dividend. For FY16, the group has declared a total dividend of 23sen per share which is above our expectation of 21sen per share. In view of this, we are raising both FY17 and FY18 dividend estimates to 23sen per share.

Target price. We roll forward our valuation base year to FY18 and derived a new target price of RM5.32 per share (previously RM4.65 per share) based on DDM valuation methodology

Maintain NEUTRAL. We are rather perturbed with the soft volume loading of GTB products since 2016. Moreover, we reckon that the mass production of new sensors components could only be seen by 2Q17 to cater for new smartphone launches in 3Q17. Nonetheless, we view that the stock has an attractive dividend yield of at least 4%. All factors considered, we are maintaining our NEUTRAL recommendation on GTB.

Source: MIDF Research - 26 Apr 2017