Globetronics’ 9MFY13 results were within our expectations, with its MYR47.5m PBT accounting for about 77% of our FY13 target. Net profit was  slight  higher  than  expected  on  a  lower  effective  tax  rate.  9MFY13  net  income  rose  31%  y-o-y  on  the  back  of  a  19%  y-o-y  jump  in revenue. EBIT margins improved to 18.8% from 17.6% in 9MFY12, underpinned by: i) economies of scale achieved across most of its product segments, ii) higher volume loadings from most of its customers, iii) improved productivity, and iv) better cost control. We have revised our EPS forecast by 1%/2% for FY13/14 by applying a lower effective tax rate.  We have also derived a higher FV of MYR3.48, based on a higher target  P/E  of  15x.  Our  valuation  is  backed  by  its  strong  earnings  growth,  with  its  low  3 -year  PEG  of  0.43x,  coupled  with  its  consistent dividend payouts and a strong balance sheet.

Within  expectation.  9MFY13  results  were  in  line  with  our  expectations,  with  its  MYR47.5m  PBT  accounting  for  about  77%  of  our  full-year target.  Globetronics’ net earnings of MYR39.5m, however, were  slightly  above expectations  due to a lower effective tax rate of 16.8%, partly contributed by the company’s 10-year pioneer status for its development of proximity sensors. 9M13 net profit climbed 31% y-o-y on the back of  19%  increase  in  revenue  to  MYR242.3m.  The  better  results  were  due  to  better  performances  across  its  business  segments,  with  the exception  of  its  integrated  circuit  (IC)  business.  9M  earnings  would  have  been  55%  higher  y-o-y  if  we  were  to  exclude  the  inclusion  of  a disposal  gain  of  RM4.6m  from  its  Jitra,  Kedah  plant  in  9MFY12.  9MFY13  EBIT  margins  increased  to  18.8%  from  17.6%  in  9MFY12  on  the implementation of its costs control programme and productivity improvement measures.

Improved margins.  Globetronics reported  lower  topline  of  MYR79.5m, down 7% q-o-q, which was  mainly due  to  the  shorter working days during the  Hari Raya  festivities and  one of its IC  customers in Singapore  placing  lower orders  in 3Q. Nevertheless, its net profit of MYR15.2m was 7% higher q-o-q, which was due to improved margins and operational efficiency.

Vivid  prospects  ahead.  Despite being in  a cyclical technology industry, the company has proved itself  by  posting  uninterrupted profitability over the past 10 years. Its management has demonstrated its ability to transform the  Globetronics into a diversified producer of LEDs, quartz crystals,  timing  devices  and  sensor  products  that  are  widely  used  in  the  fast-growing  smartphone  and  tablet  industry  from  just  a  pure  IC manufacturer. Going forward, we remain upbeat its growth prospects.  We are expecting a 3-year earnings growth CAGR of 23.6%, boosted by contributions from all business segments (LED components, timing and quartz crystal devices, proximity sensors and optical interface sensors) , with the exception of its IC business.

Maintain  BUY,  MYR3.48  FV.  We  are  factoring  a  lower  effective  tax  rate  into  our  forecasts.  EPS  has  been  revised  upward  by  1%/2%  for FY13F/14F. We have also derived a higher FV of MYR3.48 (from MYR3.00), based on a higher target P/E of 15x, which is still below its peak P/E of 19.2x  in 2010. Our valuation is  premised on  its strong earnings growth, with its low 3-year PEG of 0.43x, coupled with consistent dividend payouts  and a strong balance sheet. The company has further enhanced its net cash position with  a total net cash of MYR144m  (net cash per share of 52.4 sen per share) in 3Q13 vs MYR131m, or net cash per share of 47.7 sen in 2QFY13.  We maintain our BUY recommendation.

Source: RHB