• Maintain NEUTRAL with a lower MYR1.25 TP from MYR1.46, 8% upside and c.5% yield. Despite the share price weakness in recent months and the expectation of a stronger 2H, we believe the current valuation is fair, given the relatively unexciting growth outlook as we dial back our run-rate assumption and also factored in further delays in the new programme into our forecasts. Our new TP is based on a lower P/E target of 17x from 20x, at -0.5SD of the 5-year mean.

• 1Q22 earnings recap. Globetronics Technology’s 1Q22 revenue and core earnings were down 23% and 21% YoY due to a softer loading for sensor products amid the low season and end-of-life of legacy products. Its EBITDA margin also dropped to 35.4% from 37.5% in 1Q21 due to a lower topline and loss of economies of scale.

• Earnings expected marginally higher in 2Q. Volume loadings for both the gesture and lights sensors are likely to inch marginally higher to c.25-26m into 2Q from 21-23m in 1Q while the ramp-up of volume is set to begin from June onwards for the launch of the next versions of smartphones come September/October. Meanwhile, we should also see improvements on the laser light headlamp products amid the easing of disruptions, as well as additional products in the pipeline. The additional 30k sq ft floor space expansion is now completed and the equipment installation is likely to take place by September/October with contributions only expected in FY23. FY22 total estimated capex was budgeted at MYR45-50m.

• Forecasts and ratings. We dial back our run-rate assumption on gesture sensor products and further delays in the new programme, resulting in minor FY22F-24F earnings cuts of 5.7%, 7.5%, and 6%. We also roll forward the valuation year to FY23, resulting in a new MYR1.25 TP based on a lower target P/E of 17x (20x previously) at -0.5SD of the 5-year mean – this is given its relatively unexciting growth outlook. Note: Our TP includes a 0% ESG premium/discount based on our in-house proprietary methodology. We believe the current valuation is fair, in view of the overall uncertainties – given the expiry of tax incentives after 30 Jun – as well as unfavourable prevailing external factors. Meanwhile, the healthy yield of c.5% will serve as a support to the downside, in our view.

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

Source: RHB Research - 21 Jul 2022