• Maintain NEUTRAL with an unchanged MYR1.25 TP, 6% upside and c.5% yield. In 1H22, Globetronics Technology obtained MYR20.1m core profit which was within our but below consensus’ expectations. The stronger YoY bottomline (MYR11.1m) in 2Q was supported by better margins, stemming from a favourable product mix and FX. 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.

• Within our expectation. Globetronics Technology’s 1H22 revenue and core profit of MYR90.3m (-11.3% YoY) and MYR20.1m (+13.0% YoY) came in at 43.8% of our and 38.5% consensus’ full-year estimates. We believe a better 2H is expected as 1H usually makes up 30-40% of its full year number due to a seasonality effect. However, with the existing tax incentive which expired in Jun 2022, the difference would be less profound this time around. Overall, a better 1H profit was achieved with a higher EBITDA margin at 36.1% (1H21: 34.3%), thanks to a better product mix and favourable FX movements.

• 2H22 outlook. Volume for the light sensors is likely to inch marginally higher to c.26-27m into 3Q while gesture sensors should see lower loading adjustments from August/September onwards. Both the new generation of light and gesture sensors commenced mass production in June/May, respectively. The consolidation of specialised LED lighting business was completed with additional products in the pipeline. Elsewhere, Sorra laser program saw progress as it enters qualification stage. Potential new customers and/or products can be expected by 4Q22.

• Forecasts and ratings. We keep our forecasts and MYR1.25 TP, based on an unchanged FY23F target P/E of 17x (at -0.5SD of the 5-year mean). Our TP includes a 0% ESG premium/discount based on our in-house proprietary methodology as we assign an ESG score of 3.00, similar with the score of our country median. We believe the current valuation is fair, in view of the overall uncertainties – given the expiry of tax incentives after 30 June – 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 products/customer losses/wins.

Source: RHB Research - 27 Jul 2022