• Maintain NEUTRAL, with new MYR1.09 TP from MYR1.25, 3% upside. Globetronics Technology’s 9M22 core profit of MYR31.4m was below consensus expectations in view of the lower loading expected for 4Q22. The weaker YoY performance was affected by a lower topline while margin uptick came from favourable product mix and FX. We believe the current valuation is fair, given the uncertainties in product demand into the next few quarters amid a challenging macroeconomic environment.

• Below expectations. 9M22 revenue and core profit of MYR136.3m (-13.4% YoY) and MYR31.4m (-8.7% YoY) came in at 68.6% and 65.7% of our and consensus full-year estimates. While historically, 2H is significantly better than 1H due to the seasonality effect, the loading for gesture sensors is expected to trend lower into 4Q in view of weaker end-product demand, which resulted in the underperformance in 9M22.

• A rather flattish QoQ. 3Q22 revenue of MYR46m (-3.4%) was affected by lower loading for gesture sensors, but higher for light sensors. However, core profit was marginally higher by 2.7% to MYR11.4m, thanks to favourable FX and product mix, offsetting the higher tax expenses, following the expiry of tax incentive on 30 Jun. Meanwhile, the performance was lower YoY as the lower loading for the main sensor products affected the company’s economies of scale.

• Outlook. Light sensors and motion sensors volume is likely to remain steady into 4Q while gesture sensors should see lower loading at c.17m per month. The next generation sensors production for other new end-customers are being qualified pending volume loading. Meanwhile, the Sorra laser programme saw progress as it entered the qualification stage. New projects are expected to contribute in FY23 following the qualification stage.

• Forecasts and ratings. We revise our loading forecasts following the updated guidance and slower demand for consumer-related products, leading to lower FY22F-24F earnings by 13.5%, 12.7%, and 12.6%. Consequently, our TP is now revised to MYR1.09 based on an unchanged FY23F target P/E of 17x (at -0.5SD from its 5-year mean). Note that we ascribe a 0% ESG premium/discount into our TP, given its ESG score of 3.00 is in line with our country median, based on our in-house proprietary methodology. We believe the current valuation is fair after taking into account the weakening demand and unfavourable prevailing external factors. Meanwhile, the healthy yield of c.5% will serve as a support to the downside.

• 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 - 26 Oct 2022