• Improvement in production volume lifted 2Q17 earnings

• Cumulative 1H17 earnings came in within expectation

• Anticipating production volume for the sensor division to increase significantly in 3Q17

• Maintain NEUTRAL with an unchanged target price of RM5.31

Production volume improved in 2Q17. Globetronics Technology Bhd (GTB) 2Q17 normalised earnings came in at RM7.3m. This translates into an improvement of +32.0%yoy. The rise in earnings was mainly due to higher volume loading from some of the group’s customers. Cumulatively, 1H17 normalised earnings amounted to RM13.2m (-1.3%yoy).

Within expectation. The 1H17 normalised earnings accounts for 32.3% and 21.1% of ours and consensus earnings estimates respectively. Despite dismal 1H17 earnings performance, this is within our expectation as we expect much stronger volume loading in 3Q17 primarily from the sensor division. This is expected to significantly boost the group’s topline contribution.

Revenue. GTB‘s 1H17 revenue declined by -2.9%yoy to RM112.8m. This was mainly due to lower revenue contribution from United States and Singapore of -26.4%yoy and -5.3%yoy respectively. Fortunately, this was partially supported by higher revenue contribution from Malaysia (+2.0%yoy). Note that the revenue contribution from Malaysia constitutes approximately 70% of the group revenue.

Target price. We are maintaining our target price of RM5.31 per share based on DDM valuation methodology. This translates into an implied forward PER of 25.4x.

Maintain NEUTRAL. Despite a marginally weaker 1H17, the production volume from the sensor division is expected to surge in 3Q17 due to expected improvement in end customers’ demand. However, we view that the market has already priced-in the positivity as the share price has surged by +180.6% on a year-to-date basis. In addition, dividend yield is now expected to came in below 4%. All factors considered, we are maintaining our NEUTRAL recommendation on GTB.

Source: MIDF Research - 26 Jul 2017