INVESTMENT HIGHLIGHTS

• Lower volume loadings in 4Q18 lead to lower normalised earnings of RM23.4m (-6.1%yoy)

• Full year FY18 normalised earnings growth of +34.2%yoy is slower than anticipated

• Downward revision on earnings to reflect a more conservative stance

• Maintain NEUTRAL with a revised target price of RM2.00

Profit margin trending upwards. Globetronics Technology Bhd (GTB) 4Q18 normalised earnings contracted by -6.1%yoy to RM23.4m. The decline in earnings was mainly attributable to lower volume loadings of the group’s product. However, the decline in revenue was partially offset by improvement in profit margin to 26.7% from 23.9% as at 4QFY17.

Below expectation. Despite the lacklustre 4QFY18 earnings, GTB’s full year FY18 normalised earnings expanded by +34.2%yoy to RM69.1m. This was mainly due to: i) overall pick up in volume loadings, and ii) better utilisation of the group’s operational resources and facilities. Nonetheless, the improvement in FY18 earnings is below ours expectations by a variance of more than -10%.

Impact on earnings. We are lowering FY19 earnings to RM78.6m as we are inputting a more conservative volume growth primarily from the sensor and timing and quartz crystal devise segments.

Target price. Following our earnings revision, we are revising our target price to RM2.00 (previously RM2.22) based on DDM valuation methodology.

Maintain NEUTRAL. The group has posted steady earnings recovery since FY17 which was mainly driven by its sensor division. This will continue to be seen in FY18. Moving forward, we are expecting the growth rate to taper off due to current unfavourable end market environment and slowdown in demand of the smartphone. We also view that the group face greater risk of earnings volatility due to its dependency on certain customer. Fortunately, we opine that GTB’s current dividend yield is much more attractive as compared to its peers. All factors considered, we are maintaining our NEUTRAL

recommendation at this juncture.

Source: MIDF Research - 26 Feb 2019