To steer away from the technology industry’s strong headwinds, Globetronics has opted to ride on the fast-growing smartphone and tablet wave. The company’s fundamentals are underpinned by its: (i) prudent management throughout the industry’s up- and down-cycles, (ii) strong balance sheet, (iii) consistently high dividend payout, and (iv) ability to capitalise on the smartphone and tablet boom. We are recommending a BUY on Globetronics, with RM1.91 FV, pegged to a 5-year average PE of 11.6x on its projected FY13 earnings.
Semiconductor & electronic components provider. Globetronics Technology Bhd (Globetronics) is principally involved in the assembly, packaging, and testing of semiconductor or electronic products. The Penang-based company owns four plants in Penang and the Klang Valley. Prior to 2004, it focused on providing integrated circuits (IC) burn-in services, which accounted for over 90% of its sales. However, the company has diversified into three segments, namely: (i) the assembly and manufacturing of IC and small outline components, (ii) the assembly and testing of timing and quartz crystal devices, and (iii) wafer processing, separation, die sorting services and the manufacture of solid-state lighting (SSL)/light-emitting diodes (LED) components. Globetronics’s products can be mainly found in computers, notebooks, printers, household/consumer applications (rice cookers, fridges, microwave), automotive applications and general lighting, as well as electronic gadgets such as smartphones and tablets.
Dabbing in sensor manufacturing. In July 2012, the company started the assembly, manufacturing and testing of sensors, specifically a new generation of sensors and optical lenses. This new generation of sensors comprises power management devices that ensure power saving in smartphones and tablets and therefore, maximise the battery life of those products. Optical lenses are flashes for camera lenses. We are fairly optimistic on the company’s move into sensor manufacturing, especially after it became a full turnkey contractor in November 2012. Thus, we should see a positive full-year impact on its top- and bottom-lines starting from 2013. Moreover, Globetronics was recently granted a 10-year pioneer status, from which it enjoys full tax exemption.
Strong fundamentals. Globetronics, which has been seeing a steady improvement in net margins, has been profitable for the past 10 years. This is attributed to its strategy of making the transition from being a pure IC manufacturer to a diversified producer of LEDs, quartz crystal and timing devices, as well as sensor products widely used in the fast-growing smartphone and tablet sector. Going forward, we expect the company’s margins to continue to grow on the back of its high-margin sensor products. As of end-September 2012, the group had RM105.7m (39.2 sen per share) cash in hand and no borrowings.
Consistently high dividend payout. Globetronics, which has a policy of distributing 50% of its net earnings as dividend, has been paying dividends since 1998. In FY11, it paid out a total dividend of 8.5 sen per share, representing a high payout ratio of 85.1%. This year, we are looking at total dividends of 11 sen and 14 sen for FY12 and FY13, which translate into attractive dividend yields of 7.7% and 9.8% respectively.
RM1.91 FV. We like Globetronics for its: (i) prudent management, which guided it through the industry’s up- and down-cycles, (ii) strong balance sheet, (iii) consistently high dividend payout, and (iv) ability to capitalise on the smartphone and tablet boom. We are recommending a BUY, with a FV of RM1.91, pegged to a 5-year average PE of 11.6x on its projected FY13 earnings.
Semiconductor & electronic components provider. Globetronics Technology Bhd (Globetronics) is principally involved in the assembly, packaging, and testing of semiconductor or electronic products. The Penang-based company owns four plants in Penang and the Klang Valley. Prior to 2004, it focused on providing integrated circuits (IC) burn-in services, which accounted for over 90% of its sales. However, the company has diversified into three segments, namely: (i) the assembly and manufacturing of IC and small outline components, (ii) the assembly and testing of timing and quartz crystal devices, and (iii) wafer processing, separation, die sorting services and the manufacture of solid-state lighting (SSL)/light-emitting diodes (LED) components. Globetronics’s products can be mainly found in computers, notebooks, printers, household/consumer applications (rice cookers, fridges, microwave), automotive applications and general lighting, as well as electronic gadgets such as smartphones and tablets.
Dabbing in sensor manufacturing. In July 2012, the company started the assembly, manufacturing and testing of sensors, specifically a new generation of sensors and optical lenses. This new generation of sensors comprises power management devices that ensure power saving in smartphones and tablets and therefore, maximise the battery life of those products. Optical lenses are flashes for camera lenses. We are fairly optimistic on the company’s move into sensor manufacturing, especially after it became a full turnkey contractor in November 2012. Thus, we should see a positive full-year impact on its top- and bottom-lines starting from 2013. Moreover, Globetronics was recently granted a 10-year pioneer status, from which it enjoys full tax exemption.
Strong fundamentals. Globetronics, which has been seeing a steady improvement in net margins, has been profitable for the past 10 years. This is attributed to its strategy of making the transition from being a pure IC manufacturer to a diversified producer of LEDs, quartz crystal and timing devices, as well as sensor products widely used in the fast-growing smartphone and tablet sector. Going forward, we expect the company’s margins to continue to grow on the back of its high-margin sensor products. As of end-September 2012, the group had RM105.7m (39.2 sen per share) cash in hand and no borrowings.
Consistently high dividend payout. Globetronics, which has a policy of distributing 50% of its net earnings as dividend, has been paying dividends since 1998. In FY11, it paid out a total dividend of 8.5 sen per share, representing a high payout ratio of 85.1%. This year, we are looking at total dividends of 11 sen and 14 sen for FY12 and FY13, which translate into attractive dividend yields of 7.7% and 9.8% respectively.
RM1.91 FV. We like Globetronics for its: (i) prudent management, which guided it through the industry’s up- and down-cycles, (ii) strong balance sheet, (iii) consistently high dividend payout, and (iv) ability to capitalise on the smartphone and tablet boom. We are recommending a BUY, with a FV of RM1.91, pegged to a 5-year average PE of 11.6x on its projected FY13 earnings.
Semiconductor & electronic components provider. Globetronics Technology Bhd (Globetronics) is principally involved in the assembly, packaging, and testing of semiconductor or electronic products. The Penang-based company owns four plants - in Penang and Klang Valley. Founded by Mr Ng Kweng Chong in 1991, Globetronics started off focusing on the provision of integrated circuits (IC) burn-in services, which accounted for over 90% of sales prior to 2004. However, the company has diversified into: (i) the assembly and manufacturing of IC and small outline components, (ii) the assembly and testing of timing and quartz crystal devices, and (iii) wafer processing, separation, die sorting services and the manufacturing of solid-state lighting (SSL)/light-emitting diodes (LED) components.
Its semiconductor and electronic components can be found in personal computers, notebooks, laser jet/ ink jet printers, household electronic products such as rice cookers, fridges, microwave ovens, as well as electronic gadgets such as smartphones and tablets. Its LED business’s end-applications are mostly in automotive and general lighting, including display, neon/stage lighting and conventional lighting. Besides supplying to the domestic market, the company also ships its components to the US and Singapore, with Avago, Cree, Epson, Osram and ST Microlectronics among its major customers.
Its semiconductor and electronic components can be found in personal computers, notebooks, laser jet/ ink jet printers, household electronic products such as rice cookers, fridges, microwave ovens, as well as electronic gadgets such as smartphones and tablets. Its LED business’s end-applications are mostly in automotive and general lighting, including display, neon/stage lighting and conventional lighting. Besides supplying to the domestic market, the company also ships its components to the US and Singapore, with Avago, Cree, Epson, Osram and ST Microlectronics among its major customers.
Dabbing in sensor manufacturing. Globetronics is constantly looking for new opportunities beyond its core business of IC, timing & quartz crystal devices, and LED components. In July 2012, the company started the assembly, manufacturing and testing of sensors, specifically new generation of sensors and optical lenses. The new generation sensors are power management devices that ensure power saving in smartphones and tablets and therefore, maximising the battery life of those products. Optical lenses are flashes for camera lenses. We are fairly optimistic about the company’s venture into sensor manufacturing, especially after it became a full turnkey contractor in November 2012, which should make a positive full-year impact on its top- and bottom-line starting from 2013. Moreover, the company was recently granted a 10-year pioneer status, from which it will enjoy full tax exemption.
Existing, new customers to boost sales. Its Penang plants are mainly focused on the IC, LED, and sensor business. Globetronics’s existing customers including Epson Toyocom and Osram – both with strong bases at its Penang operation – have been ramping up orders since May 2012. Besides, its sensors as well as timing and quartz crystal devices are attracting new customers from Switzerland and Japan. The expansion of its Sungai Way plant in FY11 focusing on crystal timing devices boosted its production capacity from 60m units per month to 120m - 130m units per month.
Collaboration with clients to build new products. Globetronics has been co-developing with its clients on products that meet their mutual needs. Currently, the company is exploring a new generation of multi-port proximity sensors with its clients. Management has set aside about RM35m-RM40m as capital expenditure for FY13, which will be used to fund the production of proprietary optical lenses, multi-port proximity sensors, temperature-compensated frequency devices, as well as its existing LED business and for working capital purposes.
Existing, new customers to boost sales. Its Penang plants are mainly focused on the IC, LED, and sensor business. Globetronics’s existing customers including Epson Toyocom and Osram – both with strong bases at its Penang operation – have been ramping up orders since May 2012. Besides, its sensors as well as timing and quartz crystal devices are attracting new customers from Switzerland and Japan. The expansion of its Sungai Way plant in FY11 focusing on crystal timing devices boosted its production capacity from 60m units per month to 120m - 130m units per month.
Collaboration with clients to build new products. Globetronics has been co-developing with its clients on products that meet their mutual needs. Currently, the company is exploring a new generation of multi-port proximity sensors with its clients. Management has set aside about RM35m-RM40m as capital expenditure for FY13, which will be used to fund the production of proprietary optical lenses, multi-port proximity sensors, temperature-compensated frequency devices, as well as its existing LED business and for working capital purposes.
Industry Prospects
Riding on fast-growing smartphone, tablet wave. The explosion of the information age has led to the proliferation of smartphones, which are becoming increasingly indispensable in business and daily lives across the world. According to the International Data Corporation’s (IDC) Worldwide Quarterly Mobile Phone Tracker, smartphone shipments are forecast to soar 45.1% y-o-y to 717.5m units in 2012, in contrast to an estimated 1.4% growth in the global mobile phone market this year. Over the longer term, IDC foresees shipments of more than 1.8bn smartphones by 2016.
According to the International Teleconmmunication Union (ITU), the mobile phone market was valued at USD6b in 2011. We see great potential for the existing mobile phone users to convert to smartphones. As illustrated in Figure 4, an average 85.7 people owned mobile phones for every 100 people surveyed worldwide in 2011. Out of the 100, only 15.7 were smartphones users. In other words, over 80% of the mobile phone users had not switched to smartphones. The statistics also show that smartphone penetration rates were comparatively higher in mature economies, and there lies vast potential in the Asia Pacific region.
Riding on fast-growing smartphone, tablet wave. The explosion of the information age has led to the proliferation of smartphones, which are becoming increasingly indispensable in business and daily lives across the world. According to the International Data Corporation’s (IDC) Worldwide Quarterly Mobile Phone Tracker, smartphone shipments are forecast to soar 45.1% y-o-y to 717.5m units in 2012, in contrast to an estimated 1.4% growth in the global mobile phone market this year. Over the longer term, IDC foresees shipments of more than 1.8bn smartphones by 2016.
According to the International Teleconmmunication Union (ITU), the mobile phone market was valued at USD6b in 2011. We see great potential for the existing mobile phone users to convert to smartphones. As illustrated in Figure 4, an average 85.7 people owned mobile phones for every 100 people surveyed worldwide in 2011. Out of the 100, only 15.7 were smartphones users. In other words, over 80% of the mobile phone users had not switched to smartphones. The statistics also show that smartphone penetration rates were comparatively higher in mature economies, and there lies vast potential in the Asia Pacific region.
Financials
Better 9MFY12 results. Globetronics reported robust 3QFY12 results, with PBT surging 33% y-o-y to RM18.0m on the back of an 11% increase in revenue to RM78.3m. The better results included a disposal gain of RM4.6m from its Jitra plant. Stripping off this one-off gain, its PBT would have risen 8% q-o-q. The company’s 3Q earnings improved q-o-q, mainly due to a pick-up in sales ahead of the festive seasons in 4Q. YTD, earnings have jumped 39% to RM30.1m in spite of flat revenue, while EBIT margin rose from 11.4% in 9MFY12 to 17.5% amid a better product mix. Overall, the major contributors to the decent 3QFY12 results were: (i) higher volume loading from its customers, (ii) improved contributions from its Malaysia and Singapore markets, and (iii) a disposal gain from its Jitra plant.
Better 9MFY12 results. Globetronics reported robust 3QFY12 results, with PBT surging 33% y-o-y to RM18.0m on the back of an 11% increase in revenue to RM78.3m. The better results included a disposal gain of RM4.6m from its Jitra plant. Stripping off this one-off gain, its PBT would have risen 8% q-o-q. The company’s 3Q earnings improved q-o-q, mainly due to a pick-up in sales ahead of the festive seasons in 4Q. YTD, earnings have jumped 39% to RM30.1m in spite of flat revenue, while EBIT margin rose from 11.4% in 9MFY12 to 17.5% amid a better product mix. Overall, the major contributors to the decent 3QFY12 results were: (i) higher volume loading from its customers, (ii) improved contributions from its Malaysia and Singapore markets, and (iii) a disposal gain from its Jitra plant.
Solid fundamentals. Despite being in the typically cyclical technology industry, Globetronics has been profitable over the past 10 years (see Figure 6). The company’s net margins have generally improved as more of its higher-value products are generating profit. This is mainly attributed to its strategy to transform itself from a pure IC manufacturer to a diversified producer of LEDs, quartz crystal and timing devices, as well as sensor products widely used in the fast-growing smartphone and tablet sector. Going forward, we expect the company’s margins to improve on the back of its high-margin sensor products. As of end-September 2012, it had RM105.7m (39.2 sen per share) cash in hand and no borrowings.
Consistently high dividend payout. Globetronics, which has a policy of distributing 50% of its net earnings as dividend, has been paying dividends since 1998. In FY11, the company paid out total dividends of 8.5 sen per share, representing a high payout of 85.1%. This year, we expect total dividends of 11 sen and 14 sen for FY12 and FY13, which translate into attractive dividend yields of 7.7% and 9.8% respectively.
Consistently high dividend payout. Globetronics, which has a policy of distributing 50% of its net earnings as dividend, has been paying dividends since 1998. In FY11, the company paid out total dividends of 8.5 sen per share, representing a high payout of 85.1%. This year, we expect total dividends of 11 sen and 14 sen for FY12 and FY13, which translate into attractive dividend yields of 7.7% and 9.8% respectively.
Valuation & Recommendation
RM1.91 FV. With over 40% of its sales derived from the smartphones and tablet-related components, we see Globetronics as one of the best
proxies to the fast-growing smartphone and tablet market. We like the company’s: (i) prudent management, which has guided it through the industry’s volatility, (ii) strong balance sheet, (iii) consistently high dividend payouts, and (iv) ability to capitalise on the smartphone and tablet boom. We are recommending a BUY, with a FV of RM1.91, pegged to a 5-year average PE of 11.6x on its projected FY13 earnings.
RM1.91 FV. With over 40% of its sales derived from the smartphones and tablet-related components, we see Globetronics as one of the best
proxies to the fast-growing smartphone and tablet market. We like the company’s: (i) prudent management, which has guided it through the industry’s volatility, (ii) strong balance sheet, (iii) consistently high dividend payouts, and (iv) ability to capitalise on the smartphone and tablet boom. We are recommending a BUY, with a FV of RM1.91, pegged to a 5-year average PE of 11.6x on its projected FY13 earnings.
Source: OSK
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