Friday, 15 March 2013

Globetronics Technology Bhd - Reaffirming Our Positive View

Following our recent meeting with Globetronics’ management, we reaffirm our positive view on the company’s prospects for the next two years. As its sensor manufacturing segment is making good progress, we expect its full-year contribution to boost the group’s FY13 revenue. In addition, the company is co-developing new sensor devices with its clients. With its outlook intact going forward, Globetronics’ FY13 earnings will be underpinned by firm demand for smartphones and tablets, new orders from its Swiss and Japanese clients and organic growth from existing clients. Maintain BUY on Globetronics, with a FV of RM2.08, pegged to the stock’s 5-year average PER of 11.6x.

Growing opportunity from new business. Globetronics’ four core businesses (integrated circuits, timing and quartz crystal devices, LED components, and sensor manufacturing) paint a rosy picture of its prospects for the next two to three years. We will be seeing full-year contribution from its sensor manufacturing business in FY13 as the company became a full turnkey contractor in November last year. Besides, the company is co-developing with its clients a new generation of multi-port proximity sensors, which are expected to materialise by 4Q13 or 1Q14. The existing sensors produced by Globetronics are single-port sensors, i.e. power management devices that ensure power efficiency in smartphones and tablets while multi-port proximity sensors supportmultiple functions.

Exploring new niches in LED. The LED (light-emitting diode) business is one of Globetronics’ top revenue generators, accounting for about 28% of total sales in FY12. Its LED components are mainly found in automotive applications, general lighting and household electrical applications. According to IMS Research, a market research outfit and consultant to the global electronics industry, the penetration of LED lights in the general lighting market would surge from its current level up to 2017. The market researcher projects that LED will command a 10% share in the general lighting market in 2014, and expand that share to 25% by 2017. With more manufacturers rushing into the LED-based general lighting market, IMS Research expects the market to be saturated in 2018, whereupon the decline in prices of LED products will squeeze margins in this business segment. As a pre-emptive move against margin erosion, Globetronics has started to explore other niches within the LED arena. The LED players in US and Europe are exploring the use of LEDs in vertical farming, an urban greenhouse concept involving the cultivation of plants within skyscrapers or on vertically inclined surfaces. We admit that the concept is relatively new and would take time to become commercially viable.

Expect weaker q-o-q results. We anticipate lower q-o-q results in 1Q13 as business activities are generally softer in the Jan-Feb period, before picking up in March. Nevertheless, we should see higher y-o-y results after including the contribution of its sensor manufacturing segment and higher orders from its existing clients.

Maintain BUY, RM2.08 FV. Going forward, Globetronics’ prospects remain intact. Its FY13 earnings are underpinned by strong smartphones and tablets demand, new orders from its Swiss and Japanese clients, and organic growth from existing clients who have been increasing their orders since 2012. We are maintaining our BUY call, with a FV of RM2.08, pegged to the stock’s 5-year average PER of 11.6x.

Source: RHB

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