FW: Upgrade: Globetronics Technology (GTB MK; BUY; TP: MYR5.60) - Values have emerged

 

 

Globetronics Technology (GTB MK; BUY; TP: MYR5.60) - Values have emerged

 

• Selling overdone; U/g to BUY. Weak demand for 2017’s North American premium smartphones will translate to lower production in 1H18. As such, we expect volume loading for GTB’s sensors to be negatively impacted between Mar-Jul 2018, before picking up again prior to 2018’s launch of new smartphones in Sep 2018. For this, we cut FY18-20 earnings by 11%-17% and lower our TP to MYR5.60 (-11%), pegged to an unchanged 18x CY19 EPS. Nonetheless, we feel that recent selling is overdone (-32% YTD); upgrade to BUY for 25% upside backed by 3+% yield.
• Expect a blip in 2Q18 results. There are downside risks to our earnings projections mainly coming from the sensor division, as demand from its end client (North American premium smartphone brand) has softened substantially following the launch back in Sep 2017. Going forward, we are also cautious on the demand for premium smartphones as competition intensifies, mainly from Chinese smartphone brands (i.e. Huawei, Vivo, OPPO).
• Cut FY18/19/20 earnings by 17/11%/11%. Taking into account the expected earnings weakness in 2Q18 due to rationalisation of components by GTB’s end client, we cut our light sensor volume by 18% for FY18. Going forward, we also lower our volume expectations for light sensor sales by 6%-9% for FY19/20. Reflecting our conservative stance on GTB’s earnings, our projection remains at the lower-end of street’s expectations. That said, potential new customers or adoption of additional sensors by existing customers at ams AG’s (AMS SW, Not rated) level to fuel ams AG’s 60% revenue CAGR expectations in 2016-19, may translate to upside risk to our earnings for GTB when it materialises.
• Limited downside from here. At our conservative earnings projection (22% 3-year earnings CAGR), GTB is trading at 14.6x FY19 PER currently (13.8x ex net cash of MYR65m as at end Dec 2017), offering investment value. Backed by 3+% yields (based on 70% DPR), risk-to-reward appears attractive. Our PER peg of 18x is an average of our PER target for technology stocks within our coverage.

 

Within the sector, if you’re wondering what else has fallen quite a fair bit, here’s a table for reference. We tracked down the share prices decline for tech stocks since the first news of a possible US tariff with a possible trade war implication. Segments with most coverage by analysts (in order) would be: OSATs, EMS and Automation equipment. The other two segments are hardly covered. Have fun trading!

 

 

 

Ivan Yap | Analyst, Equity Research

Maybank Investment Bank Berhad (15938-H)
7^th Floor, Tower C, Dataran Maybank, 1, Jalan Maarof, 59000, Kuala Lumpur, Malaysia

Tel: +603 2297 8612 | Fax: +603 2284 2137
Email: ivan.yap@maybank-ib.com

 

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