KLCI : 1,798.78
Price Target : 12-Month RM 3.50 (Prev RM 3.00)
Earnings uptrend intact
Increasing production of temperature devices to lift FY13-15F earnings; raise EPS by 1-5%
Expect stronger 2Q13 earnings driven by healthy volume loading
Raise forecast dividend payout to 75%
Maintain BUY rating; raise TP to RM3.50
New products gaining traction. We raise FY13-15F EPS by 1-5% as Globetronics (GTB) has been gradually ramping up production of its temperature compensated frequency device (TCXO) to about 9m units/month currently (from 2m units/month in 2012).
We expect contribution to FY13 PBT to increase to 3% vs Higher earnings = Higher dividends. We expect 2Q13 earnings to improve q-o-q to drive FY13F EPS growth to 22% y-o-y. Overall we think our 3-year EPS CAGR of 20% (FY13-FY15F) is intact underpinned by healthy volume loading of proximity sensors, LED and TCXO products. We raise FY13-15F dividend payout to 75% of NI (from 55%) given strong FCF (RM0.22-RM0.30/share for FY13-FY15F) and a favourable dividend track record. This translates into 14-20 sen/share net DPS (5-7% net yield).
Maintain BUY. While its share price has done well, up 86% YTD, we expect earnings growth to be equally impressive. At ex-cash PE of 9x for FY14F, valuation is still cheap (below +1SD of mean) considering its 3-year EPS CAGR of 20% on the back of improving ROEs of 19-24%. Moreover, we expect GTB‘s net profit to chart new heights. Net profit is already above its previous peak of RM38m registered in 2000 (above +2SD of mean forward PE). Hence, we lift our target multiple to 15x (from 13x) to derive a TP of RM3.50 based on FY14F EPS.
Upside from sensor devices. Proximity sensors will continue to support near-term earnings, premised on GTB’s gradual capacity expansion in anticipation of rising demand for the products.
Currently the Group produces about 18-20m units/month (vs. 4m units/month in April 2012), mostly for its major Swiss customer. We understand the Group is discussing with the customer about expanding capacity and widening its product range.
We expect these proximity sensors to generate stable recurring income/volume sales, with upside from higher production volume (installed capacity still at 28-30m units/month). We forecast the product will contribute 18- 22% of Group FY13-15 PBT.
Meanwhile, we also expect optical interface sensors (OIS) to drive future earnings, premised on rising demand for the product and wider application in consumer electronics (e.g. telecommunication devices, entertainment consoles). But given that it is still in the startup stage, earnings contribution may only be significant from FY14 onwards.
The Group estimates initial production volume at 18-19m units/month and expects to achieve maximum capacity of 80- 90m units/month in FY14.
Strong dividend track record. Recent years’ dividend payouts had been consistently higher than its policy of >50% of NI, underpinned by strong cash inflow and relatively low capex (except in FY10 with RM97m capex). We project FCF/share of RM0.22 in FY13F rising to RM0.30 in FY15F.
Going forward, we expect GTB to distribute 75% of FY13- 15F NI, which would translate into 14-20 sen net DPS (5-7% net yield).
Publish date: 30/07/13