Wednesday, July 27, 2016

Globetronics Technology (GTB MK; SELL; TP: MYR2.65) – Dampened visibility; cut to SELL

Good morning,

Globetronics Technology (GTB MK; SELL; TP: MYR2.65) – Dampened visibility; cut to SELL
  • Below expectation. 2Q16 net profit of MYR6m (+77% QoQ, -64% YoY) took 1H16 earnings to MYR10m (-71% YoY), meeting only 23%/22% of our and consensus full-year forecasts. Despite a QoQ rebound in earnings, we are cautious on Globetronics’ outlook as 2Q16 revenue remains soft (-2% QoQ to MYR57m) due to underperformance in both QCTD and sensor divisions. The shortfalls between actual results and our estimates are mainly in the QCTD division whereby higher volume loading expected previously did not materialise. Also, opex and taxes were higher than expected.
  • Cut FY16-18 earnings forecasts by 27%-45%. We (i) cut QCTD’s FY16-18 volumes by 23%-30%, (ii) shave proximity sensor volume by 4% for both FY17/18 and (ii) assume a higher ASP erosion of 5% p.a. (vs 3% p.a. previously) for both QCTD and sensor divisions. Coupled with higher depreciation and opex, our FY16-18 net profit forecasts are lowered by 27-45%.
  • Demand uncertainty impairs sentiment and visibility. The absence of a pick-up in demand at the sensor division approaching major smartphone launches in 2H16 is worrying. Further exacerbated by the weak QCTD division outlook, we forecast a steep 65% YoY dive in FY16 earnings. Valuations appear stretched at 37x FY16 PER. Coupled with demand uncertainty we downgrade Globetronics to SELL with a lower TP of MYR2.65 (-32%), pegging it at a lower PER multiple of 14x (from 15x) on FY17 EPS to account for the less sanguine near-term outlook.

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