KEY INVESTMENT HIGHLIGHTS

• Maintain NEUTRAL with a slight revision to target price, to RM1.09, post the group's 2QFY24 financial performance
• Slight improvement in 2QFY24 leading to weak 1HFY24 earnings recovery of RM8.3m which cam in below our expectation
• Future volume loading remains a concern as any improvement in revenue outlook may only be observed earliest by 4QFY24
• Weak earnings outlook to translate to lower dividend yield of less than two percent in the near-term

Lack of rerating catalyst. We are maintaining our NEUTRAL recommendation for Globetronics with a slight revision in the target price to RM1.09 from RM1.10 previously. Our main concern lies on the group's weak volume loadings as seen in the 1FHY24 financial performance. We understand that the group is actively engaging with a few potential customers to secure new business. However, at best, we opine that we may also see some traction towards the end of the year.

Nonetheless, the group has been able to sustain the profit margin at the current level. On another note, given the weak performance, we also expect future dividend to came in lower as compared to FY23 which translate to a dividend yield of lower than two percent.

Volume loadings remain weak. Globetronics's 2QFY24 normalised earnings came in at RM4.4m, an improvement of +41.4%yoy and +10.7%qoq. To recall, in the previous year's corresponding period, the group's performance was boosted mainly by the forex gain. This was reflected in the higher 1HYFY23 revenue of RM64.6m as opposed to revenue recorded for 1HFY24 of RM57.5m (-10.8%yoy).

Fail to meet our expectations. On a cumulative basis, 1HFY24 normalised earnings was up by +28.7%yoy to RM8.3m in view of better profit margin of 17.3% as compared to 16.1% achieved for 1HFY23.

Geographically, there was lower revenue contribution emanating from both the Southeast Asian and North America region at -11.0%yoy and - 15.8%yoy respectively.

However, the pace of recovery seen in 1HFY24 came in below our expectation, making up only 29.1%yoy of our full year FY24 earnings estimates.

Weaker earnings prospect. Premised on the weak volume loadings thus far, we are reducing FY24 to FY26 earnings estimates lower by - 8.4% to -10.5%.

Consequently, our target price has been revised marginally lower to RM1.09 (previously RM1.10). This is achieved by pegging FY25 EPS of 4.2sen against unchanged target PER of 25.8x as we roll forward our valuation base year to FY25.

Source: MIDF Research - 26 Aug 2024