Globetronics’ 1Q13 results were in line with our expectations as we have predicted softer q-o-q results due to seasonality. Y-o-y, 1Q13 net income surged 62% to MYR10.2m on a 36% y-o-y jump in revenue, while EBIT margin rose to 15.2% from 12.3% in 1Q12, underpinned by a better product mix, economies of scale achieved across most of its product segments, as well as higher volume loadings from most of its customers. The company is in a net cash position, with net cash per share of MYR0.40 as at end-March 2013. Maintain BUY with a fair value of MYR2.04, pegged to its 5-year average P/E of 11.5x.

Within expectations. Although the company’s 1Q13 revenue and net income accounted for only 21.5% and 21.1% of our full-year estimates, we deem it in line with our expectations. In our previous company update note, we have foreseen that 1QFY13 results were lower q-o-q on seasonality factor.

Strong y-o-y growth. Globetronics reported strong y-o-y results, with revenue of MYR77.5m (+36.4 y-o-y; -9.2% q-o-q) and net income of MYR10.2m (+61.5% y-o-y; -9.2% q-o-q). Revenue contributions from all countries grew strongly, with the exception of the US as the company has discontinued business with one of its US customers due to relatively lower margin. EBIT margin held up well at 15.2% compared with 12.3% in 1Q12, underpinned by a shift in product mix to better-margin products, economies of scale achieved across most of its product segments, as well as higher volume loadings from most of its customers.

Sustainable earnings momentum ahead. Going forward, we expect the company’s earnings momentum to remain solid, bolstered by stronger contributions from its timing and quartz devices, LED components and sensor manufacturing segments. The timing and quartz devices segment was the largest revenue contributor in 1Q13, accounting for about one-third of its total sales, thanks to higher sales from its new Swiss client. Meanwhile, both LED components and sensor manufacturing segments contributed about 25% of sales each. The sensor manufacturing business is progressing well, with its 1Q13 contribution soaring to 25% of the company’s total sales from 7% in in FY12. We expect a relatively flat contribution from its integrated circuits (IC) assembling business.

Maintain BUY, MYR2.04 FV. Globetronics has converted about 0.8m shares as at end-March 2013, and has remaining employee stock option (ESOS) of about 4.0m shares (expiring in October 2014). Even with the full ESOS conversion, its EPS will only be diluted by 1.4% (FV will be diluted to MYR2.01). We are maintaining our BUY call with a FV of MYR2.04, pegged to its 5-year average P/E of 11.5x, based on an enlarged share cap. Globetronics’ prospects remain intact, underpinned by continuous strong demand for smartphones and tablets, new orders from new clients and organic growth from existing clients. The company’s fundamentals remain intact. As at end of March 2013, the company has a total net cash of MYR109.7m, equivalent to MYR0.40 per share.

Source: RHB