Globetronics’ production should normalise in 2Q16

by **Cals** Wed 20 Jan 2016, 08:56

Globetronics’ production should normalise in 2Q16

By AllianceDBS Research / The Edge Financial Daily | January 19, 2016 : 10:31 AM MYT

This article first appeared in The Edge Financial Daily, on January 19, 2016.

[size=16]Globetronics Technology Bhd ([You must be registered and logged in to see this image.] Valuation: 1.70, Fundamental: 3.00)
(Jan 18, RM5.98)
Maintain buy with a lower target price of RM7.10: Globetronics Technology Bhd had been asked by its end-customer to cut back production of its proximity sensors in December last year, with a further 20% to 25% cut also expected in the first quarter of 2016 (1Q16).
Though there is no visibility yet, we think production should normalise in 2Q16 as channel inventory should be more in line with lower end-demand after the 1Q16 cut.
We understand there had been a delay for the 3D imaging sensor as the end-customer is still looking to drive overall unit costs down and fixing certain algorithm issues.
Because of those issues, the end-customer has yet to give a final confirmation to Globetronics on the Phase 2 capital expenditure investment to bring capacity up to 40 million units per month.
This causes a bit of uncertainty for Globetronics since the consensus is already forecasting that the 3D imaging sensors will be included in both 4.7” and 5.5” smartphone models.
Taking a more conservative stance, we now forecast volume for the 3D imaging sensor to be 180 million to 360 million units in financial year 2016 (FY16) to FY17F (forecast) versus 280 million to 480 million units previously.
Our FY15F to FY17F earnings are cut by 7% to 14% after adjusting for the lower proximity and 3D imaging sensor volume. Year-on-year earnings growth is still a respectable 29% to 42% in FY16 and FY17F, albeit from a lower base.
We expect earnings to blip in 1Q16 before growth resumes from 3Q16 with the 3D imaging sensor going into mass production.
This year is clearly a year of two halves for Globetronics. Hence, we prefer to use FY17F as our valuation base year, but pegged it to a lower price-earnings ratio of 15 times (from 18 times previously).
We continue to like Globetronics due to its strong relationships with both the Swiss customer and end-customer, where the company stands to benefit from the proliferation of sensor content in smartphones and wearable devices. — AllianceDBS Research, Jan 18
[You must be registered and logged in to see this image.]

[/size]