We find positives in Globetronics’ increasing focus on the relatively more lucrative sensor segment, driven by higher volume loadings for its proximity sensors and the commencement of production for its wearable sensor modules. Maintain NEUTRAL call with TP revised up toMYR5.71 (from MYR4.95, 18x FY16F P/E) (0.35% downside) following the recent share price run-up as we roll forward our valuation to FY16F.

• Sensor to propel growth. We expect Globetronics Technology’s (Globetronics) sensor segment to contribute >40% of its FY15 sales (FY14: 32%). This will be driven by higher volume for its proximity sensors, which currently register at 20m units/month, as we understand that its customer is working on an improved version to further reduce the module size by >20-30%. Besides that, we expect maiden contributionsfrom its wearable sensor modules, which sit on 5.5m units/month capacity currently with 3.5m units/month average run rate. On a side note, the group is currently co-developing gesture and imaging sensors with one of its existing customers and a multi-die health sensor modulewith a potential new customer. Should any of these new products materialise, we expect contributions to kick in come early-2016.
• Timing and quartz devices. Globetronics’ timing and quartz devices segment is clocking in at monthly production levels of 150m-160m units. Management expects to ramp up capacity by another 10m/month by 2H15 on product transfers from one of its major customers. Overall, we expect FY15F-16F contributions from this segment to grow at 6-8%/year.
• Other highlights. Management is planning to allocate MYR40m-45m for FY15 capex. Out of this, MYR30m will cater for the potential rollout of itsimaging sensors with an initial capacity of 3m-4m units/month and target production commencement by end-2015. Funding should not be an issue given Globetronics’ MYR154m net cash balance as at Dec 2014.
• Earnings revision. We upgrade our FY15F-17F EPS by 3-6% as we revamp our model to account for stronger growth under its sensor segment. We see room for further earnings re-rating should Globetronics’ venture into imaging/gesture/health sensors materialise.
• Maintain NEUTRAL. Our TP now stands at MYR5.71 (from MYR4.95) as we roll forward our valuation to FY16F based on an unchanged 18x P/E. Following the recent share price run-up, we are maintaining our NEUTRAL call.