• Still NEUTRAL and MYR1.45 TP, 2% downside and 3% yield. We hosted a conference call with management (see some key takeaways below). The organic business is expected to be flattish-to-a-single-digit growth trajectory – premised on the next launch cycle of smart devices in 2H24 with potential upside stemming from new business developments. The on-boarding of a new major shareholder may spell a more growth-focused change, but the overall business direction remains in the near term. Management guided for an approved fourth interim dividend (slated to be announced).

• Volume loadings. Globetronics Technology guided that 1Q24 volume loadings for light, gesture, and motion sensors will be marginally lower vis-à- vis 4Q23. January’s slow volume (hampered by water disruption) will be cushioned by volume pick-ups in February and March. 1H24 volume growth will be fairly minimal, as end-customers stay cautious on inventory building. Meanwhile, existing light-emitting diode (LED) volume loadings remain stable while lower volume loadings for matured products in integrated circuits or ICs and small outline components are to be seen in 1H24.

• Business development. The new US customer in LED products has started and will slowly ramp up volume loadings (potential revenue contribution of MYR15-20m pa). Furthermore, Globetronics is engaging with potential China and Taiwan customers on evaluation and qualification for three components (memory platform) with target production in a July/August timeframe. In a blue sky scenario, the group is looking at a potential MYR10- 12m revenue contribution in FY24. Meanwhile, management is also actively looking to diversify into advanced packaging manufacturing solutions, new sensor components, and the non-consumer segment.

• Capex. FY24 capex is guided at MYR50m, where c.MYR40m is catered for machine equipment and infrastructure upgrades to support the potential new business. For production equipment, MYR7-8m is allocated for the sensor business to position Globetronics for better opportunities. Elsewhere, c.MYR20m is allocated to the potential new memory-based business for back-end testing machinery. The other MYR8-10m is for the upgrading of facilities equipment (eg chillers, compressors and air conditioner systems) to be more energy efficient and contribute to future cost savings.

• Earnings and ratings. We keep our earnings forecasts and MYR1.45 TP, based on an unchanged 25x P/E at +1SD from its 5-year mean. This is inclusive of a 2% ESG premium applied (based on our in-house proprietary methodology and the group’s 3.1 ESG score). Maintain NEUTRAL – while this may not be immediate, potential risk of changes in the management team and strategies with the on-boarding of new major shareholders could be a structural change to the counter. Key risks: i) Further weakening of smartphone and peripheral sales, ii) stronger MYR vs the USD, iii) major product and/or customer losses, and iv) discontinuing of the current management team. The converse represents the upside risks.

Source: RHB Research - 22 Feb 2024