R e g i o n a l M o r n i n g N o t e s Wednesday, 27 October 2021

COMPANY RESULTS BUY

Globetronics Technology (GTB MK) (Maintained)
3Q21: Within Expectations; Sowing Seeds For Future Growth Share Price RM2.15
Target Price RM2.70
We expect a flat 4Q21 performance on lower seasonality. Globetronics is in the midst of
rationalising its products portfolio for better profitability while pursuing new Upside +25.6%
programmes with its existing and new customers. Beyond new sensor (Previous TP RM2.80)
commercialisation in 2022, further growth could come from new sensor development
with a foreign customer. We have trimmed 2021-22 earnings by 4% to account for the COMPANY DESCRIPTION
poorer Quartz Crystal business. Maintain BUY with a lower target price of RM2.70. Globetronics is an OSAT vendor, well-known
for its sensors for smartphone, and focuses on
3Q21 RESULTS quartz crystal & timing devices and LED
Year to 31 Dec (RMm) 3Q21 qoq% chg yoy % chg 9M21 yoy % chg products.
Revenue 55.7 20.0 (15.1) 157.5 (4.2) STOCK DATA
Gross profit 23.3 52.1 (6.6) 58.7 7.0 GICS sector Information Technology
EBITDA 22.3 59.2 (23.0) 58.3 (9.0)
Bloomberg ticker: GTB MK
Operating profit 16.7 136.5 (8.1) 36.3 4.2
Finance cost 0.0 nm nm 0.0 nm Shares issued (m): 669.4
Pre-tax profit 17.2 131.0 (5.4) 37.5 7.6 Market cap (RMm): 1,439.3
Tax (0.9) (24.9) 789.9 (2.5) 168.6 Market cap (US$m): 347.1
Net Profit 16.3 160.3 (9.8) 35.1 3.3 3-mth avg daily t'over (US$m): 0.8
Core Net Profit 16.6 161.3 (9.0) 34.3 1.2
Price Performance (%)
Margins (%) qoq ppt chg yoy ppt chg yoy ppt chg
52-week high/low RM3.24/RM2.00
Gross 33.0 (3.1) 6.5 34.8 4.5
EBITDA 30.2 (9.4) (1.6) 35.3 (0.1) 1mth 3mth 6mth 1yr YTD
PBT 16.0 (7.4) 4.1 20.0 3.1 0.5 (5.3) (13.3) (24.6) (19.4)
Core net profit 13.7 (6.6) 1.0 17.3 1.5 Major Shareholders %
Source: Globetronics, UOB Kay Hian Employees Provident Fund 18.1
RESULTS General Produce Agency Sdn Bhd 7.1
Ng Kweng Chong 5.8
• Within expectations. Globetronics Technology (Globetronics) reported 3Q21 core net profit
of RM16.6m (+161% qoq, -9% yoy), bringing 9M21 core net profit to RM34.3m (+1%) which FY21 NAV/Share (RM) 0.46
accounted for 65% and 61% of our and consensus’ full-year estimates respectively. We FY21 Net Cash/Share (RM) 0.27
deem the results to be within expectations as 9M typically made up only 65-66% of the full-
year earnings for the past three years on a seasonally weaker 1H. PRICE CHART

• 9M21 revenue dropped 4%, due to the industry-wide workforce restriction and lower (lcy)
GLOBETR ONIC S TECHN OLOGY BH D

GLOBETR ONIC S TECHN OLOGY BH D /FB MKLCI INDEX

(%)
3.50 120
volume of gesture sensors in 3Q21 as guided earlier. These have resulted in lower volume
110
loadings on key sensors (-6% yoy) and LED sales (-11%) ytd. However, core net profit grew
3.00
100
1% yoy on better gross profit margin (+3.9ppts) following the linearisation of low-margin
quartz crystal business. 2.50
90

80

KEY FINANCIALS 70
2.00
Year to 31 Dec (RMm) 2019 2020 2021F 2022F 2023F 60

Net turnover 216 228 228 259 291 1.50 50

40
EBITDA 84 92 87 98 103 30 Volume (m)
Operating profit 46 52 50 63 70 20

Net profit (rep./act.) 45 51 50 63 69 10

0
Net profit (adj.) 46 51 50 63 69 Oct 20 Dec 20 Feb 21 Apr 21 Jun 21 Aug 21 Oct 21

EPS (sen) 6.9 7.7 7.5 9.4 10.3

PE (x) 31.3 28.1 28.7 22.9 20.8 Source: Bloomberg
P/B (x) 4.8 4.8 4.7 4.5 4.3
ANALYST(S)
EV/EBITDA (x) 15.0 13.6 14.5 12.8 12.2
Dividend yield (%) 3.5 3.5 2.8 3.5 3.9 Desmond Chong
Net margin (%) 20.6 22.3 22.0 24.3 23.7 +603 2147 1980
Net debt/(cash) to equity (%) (47.2) (55.1) (58.1) (60.3) (62.1) desmondchong@uobkayhian.com
Interest cover (x) 252.6 n.a. n.a. n.a. n.a.
ROE (%) 14.9 17.1 16.6 20.1 21.3
Consensus net profit - - 56 67 71
UOBKH/Consensus (x) - - 0.89 0.94 0.97
Source: Globetronics Technology, Bloomberg, UOB Kay Hian

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R e g i o n a l M o r n i n g N o t e s Wednesday, 27 October 2021

• For 3Q21, revenue soared 20% qoq on seasonally stronger demand from the high-margin REVENUE BREAKDOWN
sensor business, particularly from the light sensor business (following the new launch of US (RMm)

flagship smartphones). Alongside rationalisation of the quartz crystal business, net profit 400
sensor timing quartz LED IC

margin improved by 16.2ppt qoq to 29.9%, with bottom-line improving by nearly 3x.
300

STOCK IMPACT
200
• Still a decent 4Q21 despite seasonality. For 4Q21, we expect the production of light
sensors to be at 28m/month on average (or -8% from 30m/month in 3Q21) post the peak 100

ramp-up of new flagship smartphones in Jul 21. For gesture sensors, we expect monthly
0
volume loadings to remain stable at 23m/month in 4Q21 before the new ramp-up in Mar 22.

17

18

19

20

21F

22F
Meanwhile, motion sensor volumes are expected to stabilise at 5.5m/month. As for quartz Source: Globetronics, UOB Kay Hian
crystal timing devices, volume loadings are expected to remain at 8m/month in 4Q21 with
gradual improvement expected from its LED as well as the laser light business. TIMELINE: NEW PRODUCT COMMERCIALISATION
Type Timeline
• To start with a clean slate in 2022. Aside from the linearisation of low-margin quartz crystal Bio & environmental sensor Started
business, the group remains relevant as it is a proxy to 5G/IoT/VCSEL deployment with its New generation light sensor Started
OSAT capabilities. Further impetus could also come from the introduction of a new sensor, New generation of gesture sensor 1H22
5G interposer components 1H22
of which the group is working on with the same major customer with commercialisation to
New sensors (unknown) 2H21
take place by the end of the year. We have yet to account for this in our earnings estimates.
Source: UOB Kay Hian
Its laser lighting business has gradually improved (raw material wafer supply from the US).
Qualification programmes for other automobile laser light devices are ongoing with this 3-YEAR FORWARD PE CHART
segment still being the key focus for 2021. Meanwhile, expansion of factory space (30,000
sf) is ongoing with completion targeted to be by 1Q21 (delayed by two months due to MCO).
• Commercialisation of new products from end-2Q21. Note that two new sensor-related
products (beyond light and gesture) have started commercialisation. These are: a)
environmental and bio sensors (phase 1 capex investment: RM1m), of which Globetronics is
working on with a potential new EU customer for application in industrial markets (production
started in Jun 21), and b) 5G interposer components which the group is developing with its
German client (only wafer processing currently). Beyond the near-term catalysts, its mid-
term plan (trade diversion-related orders) is still intact, which is a new sensor development Source: Bloomberg, UOB Kay Hian
with a foreign customer. While it is premature to account this into our earnings estimates, we
believe the volume loadings from this customer could be relatively sizeable. Mass TARGET PRICE SENTIVITIY
Valuation FY22 PER Potential
commercialisation could be as soon as 1Q22. (3-yr fwd PE) (x) TP
+1SD 33.1 3.11
• The coast is clear; robust orders pipeline defies myths. While there have been recent Average 27.8 2.62
news reports on one of its key customers seeing stiffer competition in the sensor segment, -1SD 22.5 2.11
we understand that the ambient light sensors done by Globetronics are not part of the Source: UOB Kay Hian
modules that could be affected. Moreover, the statement made by its end-customer following
its quarterly update end-July on pursuing development activities for new optical solutions in
light sensing and 3D technologies, alongside higher loadings visibility in 2H21 is defying the
myth.
EARNINGS REVISION/RISK
• Post model updates, we have trimmed our 2021-22 earnings by 4% to account for the soft
demand for its quartz crystal business.
VALUATION/RECOMMENDATION
• Maintain BUY with a lower target price of RM2.70, based on a 28.0x 2022F PE, which is
at its 3-year mean PE. Outlook-wise, mass production of new-generation light and gesture
sensors with enhanced functionality, alongside new sensors for various applications, could
drive sales volumes. Globetronics benefits from 5G/IoT/VCSEL deployment with its growing
relevance in high-end smartphones. In the long term, we remain hopeful of the group’s
ability to improve its relevance in high-tech sensor products for various applications, which
would continue to spearhead earnings growth.

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PROFIT & LOSS BALANCE SHEET

Year to 31 Dec (RMm) 2020 2021F 2022F 2023F Year to 31 Dec (RMm) 2020 2021F 2022F 2023F
Net turnover 228 228 259 291 Fixed assets 97 90 85 82
EBITDA 92 87 98 103 Other LT assets 23 23 23 23
Deprec. & amort. 40 37 35 33 Cash/ST investment 164 178 192 206
EBIT 52 50 63 70 Other current assets 50 54 61 69
Net interest income/(expense) 0 1 1 1 Total assets 334 345 362 379
Pre-tax profit 52 51 64 71 ST debt 0 0 0 0
Tax (1) (1) (1) (2) Other current liabilities 37 39 43 48
Minorities 0 0 0 0 LT debt 0 0 0 0
Net profit 51 50 63 69 Other LT liabilities 0 0 0 0
Net profit (adj.) 51 50 63 69 Shareholders' equity 297 307 319 332
Minority interest 0 0 0 0
Total liabilities & equity 334 345 362 379

CASH FLOW KEY METRICS

Year to 31 Dec (RMm) 2020 2021F 2022F 2023F Year to 31 Dec (%) 2020 2021F 2022F 2023F
Operating 89 85 95 100 Profitability
Pre-tax profit 52 51 64 71 EBITDA margin 40.6 38.3 37.9 35.5
Tax (1) (1) (1) (2) Pre-tax margin 22.8 22.5 24.8 24.3
Deprec. & amort. 40 37 35 33 Net margin 22.3 22.0 24.3 23.7
Working capital changes 2 (2) (3) (3) ROA 15.1 14.8 17.8 18.7
Other operating cashflows (5) 0 0 0 ROE 17.1 16.6 20.1 21.3
Investing (16) (30) (30) (30)
Capex (growth) (21) (30) (30) (30) Growth
Investments (5) 0 0 0 Turnover 5.2 0.2 13.6 12.4
Proceeds from sale of assets 7 0 0 0 EBITDA 9.9 (5.6) 12.6 5.1
Others 3 0 0 0 Pre-tax profit 13.1 (1.3) 25.4 10.0
Financing (54) (41) (51) (56) Net profit 13.7 (1.3) 25.4 10.0
Dividend payments (50) (41) (51) (56) Net profit (adj.) 11.6 (2.3) 25.4 10.0
Issue of shares 0 0 0 0 EPS 11.5 (2.2) 25.4 10.0
Proceeds from borrowings 0 0 0 0
Loan repayment (4) 0 0 0 Leverage
Others/interest paid 0 0 0 0 Debt to total capital 0.0 0.0 0.0 0.0
Net cash inflow (outflow) 18 14 14 14 Debt to equity 0.0 0.0 0.0 0.0
Beginning cash & cash equivalent 146 164 178 192 Net debt/(cash) to equity (55.1) (58.1) (60.3) (62.1)
Changes due to forex impact 0 0 0 0 Interest cover (x) n.a. n.a. n.a. n.a.
Ending cash & cash equivalent 164 178 192 206

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