by S BIRRUNTHA / graphic by TMR
AMINVESTMENT Bank Bhd (AmInvest) has maintained a ‘Buy’ call on Penang-based Globetronics Technology Bhd but at a lower fair value of RM2.36 per share compared to RM2.84 previously due to weaker business prospects for its business.
The investment bank reduced Globetronics’ earnings forecast for the financial year 2021 forecast (FY21F), FY22F and FY23F by 35%, 21% and 26% to RM45.6 million, RM62.5 million and RM66.5 million respectively to take into account lower-than-expected volume loadings in the company’s sensor business, and projected higher tax expenses moving forward.
“We expect the Globetronics key sensor segment to remain soft in the fourth quarter of 2021 (4Q21), with flattish growth year-on-year (YoY), as its key customers are still caught in the ongoing supply chain disruption.
“Globetronics’ factory expansion plan is delayed to March from the initially planned January, further impeding its growth potential in FY22,” the AmInvest report yesterday noted.
Globetronics has decided to end the business cycle for quartz crystal and timing devices (QCTD) in December 2021 due to a key customer’s pricing pressure.
The company does not expect a significant impact on its bottom line as QCTD offered low margins and most machinery were already fully depreciated.
Its Kuala Lumpur factory will be vacant for now with management actively seeking to fill the excess capacity.
Following the discontinuation of the lower margin QCTD business, AmInvest expects the group’s net profit margin to improve by 8% points.
“The volume for the higher-margin laser lighting business is expected to double starting February 2022,” it noted.
AmInvest stated Globetronics pioneer status will expire in June 2022 but the impact will be partially cushioned by its unabsorbed tax allowance, which AmInvest has factored into its FY22F forecast.
Nevertheless, the investment bank believes Globetronics is undervalued at the current price and investors should take the opportunity to accumulate the stock.
It continues to like Globetronics due to its robust margin arising from its sensor business (60% of total group revenue), its strength in smart sensors with new generation sensor demand expected to drive growth ahead, as well as the group’s ramp-up in laser automotive headlamps to boost its light-emitting diode and solid-state lighting segments.
Globetronics posted a net profit of RM16.27 million in 3Q21 against RM18.03 million in the corresponding period a year ago due to lower volume loadings from certain customers and a drop in economies of scale.
Quarterly revenue fell 15% YoY to RM55.66 million. For the cumulative nine-month period, the group’s net profit rose 3.27% YoY to RM35.06 million despite recording a 4.2% YoY decline in revenue to RM157.46 million.
Globetronics expects its financial performance may continue to be impacted by the Covid-19 outbreak.
The company has taken a strong initiative to mitigate the exposure and disruption in the supply chain.
Globetronics will continue to focus on escalating up the value chain and ride on its research and development initiatives in new products design and development with key customers moving forward, the report stated.