(Dec 22, RM6.70)
Maintain buy with a higher target price (TP) of RM7.52: Globetronics Technology Bhd’s sensor division looks to expand further with its 3D imaging sensors set to commence commercial production by the second quarter of 2016 (2Q16) at full loadings of 30 million to 35 million units per month. This would help to propel its earnings momentum for 2016/2017.
The production line for Globetronics’ new 3D imaging sensors has recently commissioned with an initial run rate of 200,000 units to 300,000 units per month. It is now fine-tuning the manufacturing processes as well as finalising the costs with its customers.
Management reiterated its targeted full volume loadings of 30 million units to 35 million units per month by early 2Q16, after having spent some RM25 million on the new facilities and allocating another RM50 million to be incurred in early 2016 to increase its capacity to 40 million units per month.
Despite the year-to-date 56% appreciation in share price, Globetronics is still one of the most generous dividend paymasters within the local semiconductor industry with a forecast yield of 3.3% to 3.7% per annum for financial year 2015 to 2017 (FY15 to FY17).
On another note, institutional shareholdings stand at 55% to 60% currently, of which foreign institutions make up approximately 15%.
We upgrade our FY16/17 earnings per share by 5.9%/6.1% as we factor in our revised US dollar-ringgit (USD/MYR) assumption of RM4.34 going forward (from RM4.10 to RM4.20). We make no changes to our FY15 estimates.
Key risks include a potential hike in minimum wage for workers, customer concentration risk as we expect close to 60% of FY16 revenue to come from a major Swiss customer, and potential fluctuations in USD/MYR.
Following our earnings revision, we upgrade our TP to RM7.52, based on an unchanged 18 times 2016 price-earnings ratio (PER). We used a discounted cash flow (based on a weighted average cost of capital of 8.8% and terminal growth rate of 1.5%) as a corroborative methodology and derived a fair value of RM7.61, which we deemed reasonably close to our revised TP.
All in, we maintain our “buy” call as we advise investors to ride on the earnings accretion from Globetronics’ ongoing capacity expansion of its sensor segment as we move into 2016. — RHB Research, Dec 22
GTRONIC (7022) - Sensor division to propel Globetronics’ earnings for 2016/17
http://www.theedgemarkets.com/my/article/sensor-division-propel-globetronics
