KUALA LUMPUR: Maybank Investment Bank Research is retaining its Sell call on Globetronics Technology due to lofty valuation and limited near-term upside catalysts.
Its 12 month target price was RM1.56 as compared with the last traded price of RM2.20.
It said on Wednesday the weak 3Q19 core net profit was within its expectation with 9M19 core net profit 64% of our full year estimate but only 55% of consensus, pointing to possible cuts to street earnings.
“We expect 4Q19 to sustain a similar earnings level as 3Q on similar volume. After tweaking assumptions, we raise FY19-21E earnings by 2-3% and TP by four sen to RM1.56, based on an unchanged 16 times CY20E PER (-1SD for weak earnings cycle), ” it said.
Maybank Research said the 3Q19 core net profit was RM18.9m (-20% YoY, +118% QoQ), taking 9M19 core earnings to RM30.6m (-36% YoY).
Globetronics’s softer YoY 3Q19 bottomline was largely due to lower volumes from the phasing out of its selected QCTD components, as well as easing of its other products (i.e. sensors).
This is in line with the overall softer demand for premium smartphones in 2019.
Meanwhile, earnings growth was stronger QoQ primarily due to the higher volume loadings of its higher-margin sensor division.
“Shares remain overvalued after tweaking estimates, ” it said.
The research house raised its FY19/20/21E net profit by 3%/3%/2% after mainly nudging up the sensor division’s volume estimates and applying a higher US$/RM assumption of 4.15 (from 4.10).
“Nonetheless, we see downside risk to the current share price valuation of 30 times/23 times CY19/20E PER (vs. historical PER mean of 27 times) given the potential for street estimate cuts, flat near term QoQ earnings, and the slowing longer-term earnings growth outlook.
“Notwithstanding the anticipated soft near-term volume and expensive valuation, we see longer-term growth potential from the ramping up of existing sensor capacity and new products.
“Globetronics has available floor space of more than 80,000 sq.ft. at its Kuala Lumpur site following the downsizing of its QCTD business. This could be utilised for future production ramp-up of new products (e.g. 3D printing, optics sensors, laser light). Our estimates do not include such new jobs pending better visibility/confirmation, ” it said.
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