Globetronics is set to release its 4Q15 results on 23 Feb. We expect full-year core earnings to come in at MYR70m-72m vis-à-vis our previous projection of MYR76m as orders for its proximity sensors slowed in mid-Dec 2015. We gather that full loadings of its 3D imaging sensors have now been delayed to June (from April), pending final confirmation from its end-customer. Taking these into account, we reduce our TP to MYR6.66 (from MYR7.52, 26% upside) following our earnings revision. Maintain BUY.

Slowdown in Dec 2015. Based on our channel checks, orders for Globetronics’ proximity sensors slowed to 14m-15m units per month (from 20m-22m units previously) in mid-Dec 2015. We believe this could be due to a more cautious approach in inventory management by its end-customer in view of the current volatile global economic environment. We understand that the run-rate has been fairly stable since then without further downward revisions at this juncture. Delay in 3D imaging sensors. Its new 3D imaging sensors, meanwhile, have commissioned in end-2015 with an initial run-rate of 200,000-300,000 units per month. Nonetheless, we understand that full volume loadings of 30m-35m units per month have now been delayed to June (from Apr), pending final confirmation from its end-customer. We estimate that Globetronics has incurred MYR25m-30m of capex for this new capacity expansion, with another MYR45m-50m to be incurred in 1H16.

New products in the pipeline. Although management remains extremely tight-lipped on the potential new products beyond its 3D imaging sensors, our checks with sources suggest that the group could soon commence production of a new sensor-related product which might be incorporated into the next-generation flagship smartphones. We believe the qualification process is currently ongoing and should be completed latest by 2Q16. Forecasts. We trim our FY15F-17F EPS by 6.8-11.5% as we now expect its proximity sensors to run at 14m-15m units per month for 1H16 and to revert to 18m-20m units for 2H16. We are also factoring in the delay in full ramp-up of its 3D imaging sensors to Jun 2016 (from April).

Key risks include: i) customer concentration risk as we expect c.60% of its FY16 revenue to come from its major Swiss customer, ii) a potential slowdown in global spending on technology products, and iii) fluctuations in USD/MYR. Maintain BUY. Following our earnings revision, we lower our TP to MYR6.66 (from MYR7.52) based on an unchanged 18x 2016F P/E. We used DCF (based on WACC of 9.0% and terminal growth rate of 1.0%) as a corroborative methodology and derived a fair value of MYR6.79, which we deem reasonably close to our revised TP. All in, we maintain our BUY call as we deem the recent selldown as a good opportunity to buy on weakness. We continue to advise investors to ride on the earnings accretion from its ongoing capacity expansion under its sensors segment as we move towards 2H16.

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Source: RHB Research - 22 Feb 2016