Investment Highlights

• We maintain HOLD recommendation on Globetronics Technology (GTRONIC) with a lower fair value of RM0.97/share (from RM1.18/share), based on FY25F PE of 19x, in line with its 5-year mean. We made no adjustments to our neutral 3-star ESG rating.

• We cut our earnings forecast for FY24F/FY25/FY26F by 45.9%/27.8%/25.3% to factor in a slower-than-expected recovery in orders amid an anticipated slowdown in global economic growth.

• We maintain a cautious view of the company post-results briefing. Key takeaways are as follows:
   
  • Near-term outlook for its existing business remains lukewarm as management expects weak volume loading from key customers over the next 2 quarters. Factory utilisation rate is expected to remain below 70% for the year.
     
  • Management guided that dividend payout ratio will be kept at 20%-30% of net profit as the company will conserve cash for future expansion plans. For FY24F, the company has earmarked RM45mil for capacity and capability upgrades for new segments such as medical, network/communication and automotive components.
     
  • Moving forward, management has set aggressive capex spending as the company is working on new projects which include memory packaging and light sensors for automotive segment. Management also shared that the company plans to move up the value chain by venturing into advanced packaging for silicon photonics system.
     
  • That said, contribution from new projects will only be reflected from FY25F onwards. We believe our revised earnings forecast has sufficiently factored in the potential earnings from the new segments, which partially contribute to the doubling of FY25F revenue.
     
  • With more investments being spent on these new projects, Globetronics’ margin profile over the next 2- 3 years is expected to be diluted as gestational cost from the expansions will be incurred to drive growth moving forward.

• From a valuation perspective, the stock is currently trading at a fair 17x FY25F PE, which is below its 5-year mean.

Source: AmInvest Research - 3 Sep 2024