Globetronics still makes appealing investment case despite earnings forecast cuts
KUALA KUCHING: LUMPUR: Globetronics Technology Bhd (Globetronics) still makes an appealing investment case, analysts say, despite cutting the group’s earnings forecast.
Affin Hwang Investment Bank Bhd ( Affin Hwang Capital) made several changes to its forecasts, resulting in 12 to 18 per cent cuts in its 2019 to 2021 earnings per share (EPS) forecasts.
“Key changes include a downward revision to our revenue forecasts driven by a cut in the contribution from the timing device business,” the research firm said.
“We have also modelled in lower sensor production volume growth of 12 per cent year on year (y-o-y) for 2019E and eight per cent for 2020E (from 31 per cent and 12 per cent y-o-y, respectively) given the weak start to the year and also to take into account a potentially lacklustre demand for its end-customer’s product this year.
“Note that we have not incorporated any contribution from Globetronics’ new products into our 2019-21 EPS forecasts, which largely explains our forecast for an earnings decline in 2021.”
Affin Hwang Capital recapped that Globetronics’ first quarter of 2019 (1Q19) earnings were weak, with nearly all key segments reporting a sluggish performance.
“The weakness in its sensor division was due to its light sensor product although its gesture sensor, which is designed into a wireless headset, has continued to be well received and production volumes remained robust.”
On the whole, the research firm believed that sensor volumes will improve in the coming quarters due to seasonality.
Despite the cuts in earnings forecasts, Affin Hwang Capital opined that Globetronics still makes an appealing investment case given the group’s increasing presence as a niche sensor play.
“We expect several sensor and non-sensor products to be qualified in the second half of 2019 (2H19).”
The research firm also liked Globetronics’ dynamic management team which has successfully steered the group, taking advantage of attractive business opportunities.
“In our view, the timing device business will be replaced by another large scale project that would likely sustain its earnings growth in the years to come.
“While the company undergoes some earnings consolidation, its risk-reward profile remains favourable, in our view.
“Moreover, the 2019 to 2021E dividend yields at fivesix per cent are attractive.”