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Eye on tech companies in Malaysia exposed to the Apple supply chain


The strong performance at Apple could be a catalyst for greater interest into several semiconductor companies at home because Apple is a substantial end-client in the supply chain for their products.  One of those companies is Globetronics Technology Bhd that had also seen an impressive jump in its bottom line for the second quarter ended June 30.

The strong performance at Apple could be a catalyst for greater interest into several semiconductor companies at home because Apple is a substantial end-client in the supply chain for their products. One of those companies is Globetronics Technology Bhd that had also seen an impressive jump in its bottom line for the second quarter ended June 30.

PETALING JAYA: Local technology companies, especially those exposed to the Apple supply chain, will be closely watched back home.

This is because Apple Inc, which is listed in the United States, had reported a set of stellar results last week that firmly beat analysts’ estimates.

The maker of iPhones had touched the US$1 trillion market-value mark on Thursday, the biggest market capitalisation ever achieved by any company on the US stock exchange, following its impressive quarterly results.

Apple’s report had caused some bulls to return to the US market and its upward move seems to have upended the continued selling that was seen on the US’ tech-dominant Nasdaq just a day before the results were released.

Facebook, which is part of the popular “FANG” group of tech growth stocks, had seen a big selloff recently, with its shares plunging almost 20% in a day as its second quarter topline missed analyst expectations while daily active user count also disappointed.

In contrast, Apple’s strong quarterly report was mainly boosted by software and services revenue as well as average iPhone selling prices.

It was reported that Apple slightly missed analyst forecasts for sales of the iPhone but surpassed estimates for average selling price.

Growth in the software and services segment had also aided its top and bottom line.

The strong performance at Apple could be a catalyst for greater interest into several semiconductor companies at home because Apple is a substantial end-client in the supply chain for their products.

One of those companies is Globetronics Technology Bhd that had also seen an impressive jump in its bottom line for the second quarter ended June 30.

The company’s results were also released last week, about the same time as Apple announced its financial performance.

Globetronics saw its second-quarter net profit rising 32% to RM9.34mil from a year ago because of forex gains and a higher volume loading of products.

The jump in bottom line was also amplified due to it having recorded a forex loss of RM1mil in the same period a year ago.

Globetronics is involved in producing components operating within the Apple iPhone supply chain ecosystem.

The company’s shares are now trading close to its historical high of RM2.92 that was achieved in the beginning of this year.

With a share price of RM2.59 on Friday’s close, Globetronics is worth about RM1.73bil in market capitalisation and is trading at a forward Dec 2018 price-to-earnings ratio of 20.72 times. (see table)

Maybank Research in a report last week said Globetronics’ first-half core earnings at 40% of its full-year forecast are above expectations.

This is because it is expecting a “much stronger” second half on an anticipated surge in demand at the sensors business segment to prepare for the coming smartphone launches in the third quarter of this year.

“We make upward adjustments in our proximity and wearable sensor volumes to incorporate strong first-half 2018 volume shipments.

“We have also raised our gesture sensor volumes, incorporating capacity expansion undertaken by Globetronics as required by its key sensor client, ams AG,” it said.

It rated the stock a “hold” with a raised target price of RM2.40.

According to earlier reports, Globetronics is one of the companies with a more significant exposure to the Apple supply chain.

However, Globetronics has ramped up contribution from other smartphone makers also of late.

Other companies that are also deriving some of their sales from the Apple supply chain include Inari Amertron Bhd , Malaysian Pacific Industries (MPI) and Unisem (M) Bhd .

According to a report by CIMB Research, Inari derived close to 50% of its revenue from the radio frequency (RF) division, which mainly serves the smartphone market.

Meanwhile, MPI is estimated to derive 30% of its revenue from RF and Unisem 30%.

These figures, however, do not only cater to Apple but also other South Korean and China-based smartphone manufacturers.

Unisem, which has a relatively lesser contribution from the smartphone segment compared to its peers, had in the week before reported a weak second quarter.

Its net profit fell 27% to RM31mil in quarter ended June 30, with revenue dropping 6% to RM343mil.

The company attributed the decline in earnings to unfavourable exchange rates and lower margins due to a change in product mix.

Its shares suffered a decline of 6 sen or 2.32% a day after its results were announced and is currently trading at around RM2.50.

The company had also issued a word of caution to investors that a prolonged trade war between the US and China would affect it adversely.

Other tech companies that are part of the Apple supply chain which have yet to report their quarterly earnings for this season are Inari and MPI.

It would be interesting to watch the movement of these companies in the days ahead with the developments at Apple amid the ongoing trade war between the superpowers of the East and West.

   

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