Globetronics’ 1Q15 core earnings of MYR17.1m were in line with expectations. That said, we are upgrading our call to BUY with our TP revised to MYR6.85 (18x FY16F P/E, 13% upside) as we factor in a higher contribution from its imaging sensor segment, which we expect to hit into full steam come 2H16, upon clarification with management.

• Results review. Globetronics’ 1Q15 revenue registered at MYR88.7m,(+6.3% YoY) lifted by higher volume loadings for both its sensor and timing and quartz devices segments. Core earnings, meanwhile, closed at MYR17.1m (+21.6% YoY), coming within expectations at 21.0%/21.7% of our/consensus full-year estimates. On a sequential basis, revenue closed 1.4% lower but its bottomline increased 12.0% over the period, as profitability improved on better economies of scale coupled with stringent cost control.
• Key highlights. In our recent conversation with the company, management clarified that the group is planning to allocate MYR60m-70m in capex over the next two years to ramp up the rollout of its imaging sensors vs our previous expectation of MYR30m. The first phase of this expansion is expected to commence by 4Q15 with full production at 30m-40m units/month likely by 2Q16. Based on our backof-envelope calculations, the imaging sensor segment could potentially translate into an additional revenue contribution of MYR180m-250m paon a full year basis vis-à-vis our previous expectation of MYR80m-100m. We are positively surprised with this ramp-up in capacity expansion under its sensor segment, which in our view would help to propel earnings growth over the next two years.
• Earnings revision. We upgrade our FY16F EPS by 20% to factor in a higher contribution from its imaging sensor segment, to be in line with management’s latest guidance. We also take the opportunity to introduce our FY17F estimates. Key risks are: i) fluctuations in MYR against USD, ii) higher raw material costs, and iii) a slowdown in the smart devicesmarket.
• Upgrade to BUY. Following our earnings revision, we are upgrading our TP to MYR6.85 (from MYR5.71) based on an unchanged 18x FY16F P/E. Given the appealing upside of 13% on top of its decent dividend yield of close to 4%, we are upgrading our call to BUY. We advise investors to ride on the earnings accretion from its imaging sensor segment which, in our view, could drive its share price to new highs.