Globetronics to raise capex, boost sensor unit

KUALA LUMPUR: Globetronics is expected to increase its capital expenditure (capex) in 2017 to RM103mil from RM80mil while the pioneer tax status for the sensor division has been extended for another five years, says Affin Hwang Capital Research.

The research house said on Thursday Globetronics's higher capex will raise its installed capacity for its sensor business from 45 million units to 58 million units a month. 

It said bulk of the expansion is for the light and gesture sensors, which should see capacity rise from seven million to 13 million units for the light sensors. As for the gesture sensors, the capacity will increase from 30 million to 37 million units per month. 

The new equipment will be progressively turned on from mid October and should be fully installed by end October. 

In terms of utilisation, the sensor division is operating close to 90% utilisation and we understand that visibility for these volumes will hold up into 1Q18.  

“Sensor production output ranged between 20 million and 30 million units per month for July to September. 

“This is a sharp increase (two to three fold increase) over the average eight to 10 million units per month in 1Q-2Q17, providing scope for a significantly better 3Q17, both on a quarter-on-quarter and year-on-year basis,” it said.

Affin Hwang Research lowered its average selling price (ASP) assumption for the sensor division but overall raise our EBITDA margin forecast to take into account the higher contribution from the sensor business (42% of revenue in 2017E rising to 60% in 2018E). 

“Combined this leads to a 22% cut to our 2017E EPS. Our 2018-2019E EPS are trimmed slightly by 0.4% and 2.3% respectively. 

“Maintain Buy and target price of RM8 (based on 20 times 2018E EPS). Our 2017 dividend per share  forecast is also trimmed to 16 sen from 24 sen to account for the higher capex and lower earnings.
“The projected payout ratio is nevertheless still high at 75% of 2017E earnings but we expect this to revert to the 90% level in 2018-19E. 

“Our underlying thesis for the stock remains based on its strong earnings recovery and solid growth prospects as it leverages on its Austrian customer. Key risks to our call would be a loss of customers and a significant decline in sensor volumes,” said the research house.

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