• Maintain NEUTRAL and MYR1.46 TP, 1% upside. 1Q22 core profit of MYR9m (-21% YoY) was within expectations. The weaker performance was due to softer loading for sensor products amid the low season and end-of- life of legacy products, while margin was affected due to the lower topline. Earnings should improve in the quarters ahead, in tandem with the ramp- up of a major smartphone brand.

• Within expectations. Globetronics Technology’s 1Q22 revenue and core earnings were down 23% and 21% YoY, respectively. The results were within expectations at 17% and 16.3% our and consensus’ full-year estimates, in view of stronger 2H, given the seasonality factor. The YoY contraction was due to lower demand for sensor products and loss of economies of scale, which saw the EBITDA margin drop to 35.4% from 37.5% in 1Q21.

• Lower run rates. Core profit fell 37.7% QoQ due to the lower volume loadings for all products and high-base factor in 4Q21 from adjustments made on the over accrual of expenses. The weaker revenue trend was due to lower run rates for most products, especially for gesture sensors due to slower demand, and lower contributions from its end-of-life products.

• Outlook. We understand that volume loadings for both the gesture and lights sensors should improve marginally to c.25-26m into 2Q from 21-23m currently. Meanwhile, further volume improvements are expected for laser light headlamp products amid the easing of disruptions, with additional products in the pipeline. The new generation of gesture and light sensors are now targeted for May-June. Other new projects in the pipeline include the specialised light-emitting diode (LED) lighting business. The 30k sq ft floor space expansion is expected to be completed in May. Total estimated capex is budgeted at MYR45-50m.

• Forecasts and ratings. We keep our forecasts and TP of MYR1.46, based on an unchanged target P/E of 20x, which is lower than the OSAT peers and at -0.5SD of the 5-year mean due to its unexciting growth outlook. Note that our TP includes 0% ESG premium/discount, based on our in-house proprietary methodology. We believe the current valuation at FY22F P/E of 22x is fair, in view of the uncertainties from the unexciting growth outlook – given the expiry of tax incentives after 30 Jun 2022, as well as unfavourable prevailing external factors.

• Key downside/upside risks: Further softening/strengthening of smartphone and peripheral sales, a stronger/weaker MYR, major product/customer loss/wins.

Source: RHB Research - 27 Apr 2022