Dismal FY19 earnings anticipated for Globetronics Technology

It may be weak year for Globetronics Technology Bhd (Globetronics) for its financial year 2019 (FY19) as low volume loadings are expected to persist.

In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) said that Globetronics’ second quarter of 2019 (2Q19) normalised earnings declined by 13.8 per cent year-on-year to RM7.4 million.

“The decline in earnings was mainly a ributable to drastic decline in volume loadings from certain customers in the group,” it said.

It added that the dismal 2QFY19 financial performance led to 1HFY19 normalised earnings of RM11 million which represents a reduction of 55.3 per cent y-o-y.

“This was primarily premised on the phasing out of certain matured products of a Japanese customer and lower volume loadings for products related to the smartphone market.

“All in, 1H19 normalised earnings failed to keep pace with ours and consensus expectations, accounting for 19 and 18.3 per cent of FY19 full year earnings estimates respectively,” the research team said.

As a result, MIDF Research lowered its FY19 and FY20 earnings estimates to RM48.8 million and RM56.1 million respectively as it expected lower production volume assumptions from across all its major products offering.

“The so volume loadings continue to negatively impact the group’s wellbeing as seen in 1HFY19 financial performance. While we expect some earnings recovery in 2HFY19, we opine that it would be insufficient to make up for the underperformance seen in 1HFY19.

“While we acknowledged the group’s effort to diversify away from the smartphone market, we are of the view that meaningful contribution to the bo omline can only be seen in the later part of FY20,” it added.

“Given the poor nearterm outlook, we expect the share price to come under great pressure. Moreover, we believe the estimated dividend yield of 3.5 per cent to four per cent is unable to make up for the anticipated retracement in share price.

“All factors considered, we are downgrading our recommendation to ‘sell’ from ‘neutral’ previously,” MIDF Research said.