INVESTMENT HIGHLIGHTS

• 3Q18 normalised earnings improved to RM23.2 (+61.8%yoy) in view of higher volume loadings and improvement in profit margin

• Nonetheless, 9M18 cumulative earnings failed to kept pace with ours and consensus expectations

• Downward revision on earnings to reflect a more conservative stance

• Maintain NEUTRAL with a revised target price of RM2.22

Profit margin trending upwards. Globetronics Technology Bhd (GTB) 3Q18 normalised earnings improved by +61.8%yoy to RM23.2m. The rise in earnings was mainly due to: i) higher volume loadings of products from certain customers in the group, ii) better utilisation of operational resources and facilities. Note that the 3QFY18 normalised profit margin expanded to 26.9% from 16.5% as at 3QFY17.

Below expectation. Cumulatively, GTB’s 9M18 normalised earnings amounted to RM47.9m (+73.1%yoy). Nonetheless, the surge in the earnings came in below ours and consensus expectations, both accounting for less than 70% of full year FY18 earnings estimates respectively.

Impact on earnings. We are lowering FY18 and FY19 earnings to RM74.0m and RM97.6 respectively as we are inputting a more conservative volume growth primarily from the sensor and timing and quartz crystal devise segments.

Target price. We are revising our target price downwards to RM2.22

(previously RM2.34) based on DDM valuation methodology.Maintain NEUTRAL. The group has stage recovery in earnings. This was mainly driven by its sensor division. For 2018, the division is expected to perform better in view of the three projects secured for the smart device sector. This has been reflected in its 9M18 financial performance, supported by higher volume loading and expansion in profit margin. Nonetheless, we remain concern on the group’s dependency on certain customers. On another note, we opine that the dividend yield of less than four percent is also less attractive. All factors considered, we are maintaining our NEUTRAL recommendation at this juncture.

Source: MIDF Research - 31 Oct 2018