Globetronics upbeat on 2Q prospects despite disappointing 1Q

by ASILA JALIL / pic source

GLOBETRONICS Technology Bhd could see a boost in earnings from the demand for Internet of Things (IoT) sensors in the financial year 2023 (FY23) and FY24. 

Maybank Investment Bank Bhd (Maybank IB) noted that the tech group’s results for its first quarter of 2022 (1Q22) were below expectations owing to lower volume loading of its gesture/light sensor products, in addition to seasonality weakness in the first half of 2022 (1H22). 

“Although the results seem lacklustre, we remain sanguine on Globetronics prospects on undemanding valuations (currently trades at -2SD below mean) and improving industry prospects, with a slew of next-gen light/gesture sensors set to enter mass production by end-2Q22. 

“Management is also focused on four other IoT sensor projects in hand that could further boost earnings in FY23-FY24,” the bank stated in its latest research note on Globetronics. 

Allied Market Research posits that the IoT sensor market is expected to grow at a 10-year compound annual growth rate of 28.1% through to 2030 and Asia Pacific is set to be the largest contributor to this market. 

Maybank IB maintained its ‘Buy’ call on Globetronics with a target price (TP) RM2.48 for the next 12 months, underpinned by undemanding valuations and favourable industry prospects. 

The company’s net profit for the 1Q22 was down 21% year-on-year (YoY) or 49% quarter-on-quarter (QoQ) to RM9 million, coming in at just 16% of the research firm’s FY22 estimates. 

The steep sequential/QoQ drop in earnings is to be expected as 1H tends to be seasonally weaker, but the YoY softness was a negative surprise. 

“Globetronics 1Q22 turnover/Ebit declined 23%/21% YoY from a reduction in volume loading by its gesture and light sensor (62% revenue contribution; flat YoY) customers due to lockdowns in China towards the end of March,” Maybank IB noted. 

Globetronics’ management has guided that these volumes are expected to pick up in 2Q22 based on current order forecasts. 

The investment bank added there are several risk factors to Globetronics earnings estimates, TP and rating. 

“A sharp downturn in the global markets for electronics, especially smartphones, will affect the demand for sensors and other components that Globetronics produces for its key clients. 

“Additionally, foreign-exchange volatility, especially US dollar/ringgit, will also affect its earnings, as over half of the group’s revenue and cost of goods sold are denominated in US dollar,” the bank added.