• Maintain NEUTRAL, new MYR1.05 TP from MYR1.09, 4.5% yield and 4.5% downside. FY22 core profit of MYR46.0m (-5.9% YoY) beat expectations thanks to the adjustment on over-accrual of expenses and a favourable FX. Overall, the weaker YoY performance was affected by lower loadings from major products, cushioned by favourable FX. We believe the current below-peers valuation is fair after a marginal tweak in our FY23 forecast, considering the backdrop of another uninspiring year amid cost pressures and demand weakness for consumer electronics.

• Above expectations. FY22’s core earnings of MYR46m was ahead of expectations, at 116% and 111.6% of our and consensus’ full-year estimates thanks to surprisingly good margins due to adjustments on over- accrual of expenses and a favourable FX movement. YoY slower revenue of MYR179.4m (-13%) was dragged down by the lower volume loadings, especially for gesture sensors products, partially cushioned by the stronger USD against the MYR. These, coupled with higher tax expenses – post expiry of tax incentives on 30 Jun – contributed to the lower profitability.

• A flattish QoQ. The 4Q22 revenue of MYR43.1m (-6.5%) was affected by lower loading for sensors products due to softening end-product demand. However, core profit rose by 27.9% at MYR14.5m, thanks to favourable FX and over-accrual of expenses, offsetting the higher tax expenses. Meanwhile, the performance was flattish YoY as the lower loading for the main sensor products was cushioned by better margins and FX.

• Outlook. Management is guiding for lower volume loadings into FY23, in view of a lacklustre end-product demand. Both the light and gesture sensors should see lower-loading QoQ. The cost escalations in labour and the electricity bill will also undermine FY23 performance, on top of the lower-volume forecasts guidance. However, new projects – such as the lens encapsulation and Sorra laser – are expected to contribute this year. The budgeted capex for FY23 is MYR35-40m (FY22: c.MYR12m), following the delay in equipment and building expansion spending in FY22.

• Forecasts. Despite the stronger-than-expected 4Q numbers, we lower our FY23F earnings by 4%, given the backdrop of unexciting end-demand and slower volume guidance from customers. Consequently, we lower our TP marginally to MYR1.05, based on an unchanged FY23F target P/E of 17x (at -0.5SD from its 5-year mean), including a 0% ESG premium/discount into our TP, given Globetronics Technology’s ESG score of 3 is in line with our country median, based on our in-house proprietary methodology. While trading below the sector-average valuation, FY23’s lacklustre outlook and the higher input cost factors continue to weigh on the stock. However, we believe the 4-5% dividend yield will serve as support.

• 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 - 22 Feb 2023