Globetronics’ medium-term earnings prospects remain resilient

by **Cals** Thu 10 Jul 2014, 02:28

Business & Markets 2014

Written by Kenanga Research

Wednesday, 09 July 2014 10:06

Globetronics Technology Bhd
(July 8, RM4.39)
Maintain take profit with target price of RM4.23: Since our “trading buy” call on Oct 17, 2013, at RM3.04, Globetronics has surged by 44.1% to RM4.38, clearly outperforming the benchmark FBM Small Cap Index, which only advanced by 17.8% to 18,353.9 over the same period.

We see Globetronics’ medium-term earnings prospects remaining resilient, mainly driven by its sensor products. Recall that ever since the company started supplying the new products, namely proximity sensors (used for extending battery life in smartphones and tablets [S/T]), to a Swiss customer in 2012, its bottom line improved to a two-year compound annual growth rate (CAGR) of 40% to RM52.6 million in financial year 2013 ended Dec 31 (FY13) on the back of new increased capacity and stable growth across other product ranges, as well as the higher earnings before interest, taxes, depreciation and amortisation margin contributed by the proximity sensors.

Now with the S/T trend leaning towards proximity, gestures and image-based user interfaces which the group has already started to co-develop and mass produce, and amid the sustainable demand for its timing devices and light emitting diode segments as well as the recovery of the semiconductor industry, we believe the group’s net profit could achieve another decent two-year CAGR of 19% to RM65.2 million in FY14 and RM74 million in FY15.

The group is in a net cash position of RM131 million as at the first quarter ended March 31. We understand that Globetronics intends to maintain a minimum dividend payout ratio of 50%. — Kenanga Research, July 8

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This article first appeared in The Edge Financial Daily, on July 9, 2014.

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