FW: Results: Globetronics Technology (GTB MK; SELL; TP: MYR5.50) - Much better QoQ but still short

 

 

Globetronics Technology (GTB MK; SELL; TP: MYR5.50) - Much better QoQ but still short

 

• Fully priced in. Higher volume loading mainly from sensor and QCTD division was the key factor for GTB’s 38%/141% QoQ surge in 3Q17 revenue/core net profit. However, 9M17 core net profit is still below expectations at just 50%/45% of our and consensus’ FY17 forecasts due to lower-than-expected sensor ASPs. We lower FY17-19 core net profit estimates by 5%-8%, mainly to account for lower sensor ASPs. Correspondingly, our TP is reduced to MYR5.50 (-5%); we maintain our anti-consensus SELL rating.
• Gloomy days are over. The commercialization of the light sensors in a major North American smartphone model, launched in Sep 2017, lifted GTB’s quarterly revenue back to 2015’s levels (MYR80+m) and 3Q17 earnings to MYR14m (+141% QoQ, +57% YoY). We expect the QoQ strength to persist into 4Q17 to cater for the initial demand of that newly-launched smartphone. Nonetheless, volume loading may taper in 1Q18 due to slower-than-expected response for the two lower-end smartphone variants alongside a limited supply for the high-end variant (capped by certain component supplies); soft demand may result in a production cut by 2Q18.
• Pressures on key client may weigh down GTB. Despite much stronger quarterly revenue (+45% QoQ, 79% YoY to EUR263m), ams AG’s (AMS SW, Not Rated) headline earnings only hit EUR20m in 3Q17, narrowing 9M17 losses to EUR14m (vs EUR89m profits in 9M16). Losses from severe gross profit margin compression (9M17: -16.4ppts to 37%) alongside stress on ams AG’s balance sheet (100% net gearing as at end-Sep 2017) may eventually put pressure points on its suppliers, GTB being one of them. Amid higher volume loading, cost-down pressures may also be present. Taking this into account, we lower overall sensor ASP forecasts by 6%-7% leading to lower FY17-19E core net profit by 5%-8%.
• Gap between consensus expectations too large. Top-end of consensus FY18E net profit remains at MYR121m (vs. low-end of MYR59m) despite disappointment from the gesture sensor which was not bundled into the recent North American smartphone launch. For this, we see risk in consensus expectations for FY18. Coupled with expensive valuations (21.9x CY18 PER) following a 92% share price gain YTD, we believe the stock is ripe for profit taking.

 

 

 

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