Globetronics’ sensor division looks to expand further with its 3D imaging sensors set to commence commercial production by 2Q16 at full loadings of 30-35m units per month. This would help to propel its earnings momentum for 2016/2017. Maintain BUY with our TP upgraded to MYR7.52 (from MYR7.10, 13% upside) following our earnings revision to take into account our latest USD/MYR assumptions.
Imaging sensors. The production line for Globetronics Technology’s (Globetronics) new 3D imaging sensors has recently commissioned with an initial run-rate of 200,000-300,000 units per month. It is now finetuning the manufacturing processes as well as finalising the costs with its customer. Management reiterated its target full volume loadings of 30m-35m units per month by early 2Q16, with it having spent some MYR25m on the new facilities and would allocate another MYR50m to be incurred in early 2016 to increase its capacity to 40m units per month.
Generous dividend. Despite the YTD 56% appreciation in share price, Globetronics is still one of the most generous dividend paymaster within the local semiconductor industry with a forecasted yield of 3.3-3.7% p.a.for FY15F-17F. On a side note, institutional shareholdings stand at 55-60% currently, of which foreign institutions make up approximately 15%.
Forecasts and risks. We upgrade our FY16F/17F EPS by 5.9/6.1% as we factor in our revised USD/MYR assumptions of MYR4.34 going forward (from MYR4.10-4.20). We make no changes to our FY15F estimates. Key risks include: i) potential hike in minimum wage for workers, ii) customer concentration risk as we expect close to 60% of its FY16 revenue to come from its major Swiss customer, and iii) potential fluctuations in USD/MYR.
Maintain BUY. Following our earnings revision, we upgrade our TP to MYR7.52 based on an unchanged 18x 2016F P/E. We used DCF (based on WACC of 8.8% and terminal growth rate of 1.5%) as a corroborative methodology and derived a fair value of MYR7.61 which we deem reasonably close to our revised TP. All in, we maintain our BUY call as we advise investors to ride on the earnings accretion from its ongoingcapacity expansion under its sensors segment as we move into 2016.
DCF valuation. Under our corroborative DCF valuation, we assume annual capex allocation of MYR50m pa in the foreseeable future. We peg a terminal growth rate of 1.5%, which we deem reasonable as we expect Globetronics to further leverage on the close rapport with its major Swiss customer under its sensor segment as well as Seiko Epson Corporation (6724 JP, NR) to expand its timing and quartz devicesdivision. The derived equity value of MYR7.61 translates into 18.2x 2016F P/E, which we deem to be reasonably close to our target multiple of 18.0x.
Source: RHB Research - 22 Dec 2015
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