Special dividend in the offing
Price (31 July 2013) RM2.60
Target Price RM2.96
• Registered double digit earnings growth in 1H13 to RM24.3, inline with our expectation.
• Further upside in earnings seen. We are revising FY13 and FY14 earnings higher by 13.4% and 12.8% respectively.
• Higher cash pile portends to another round of special dividend. Maintain BUY recommendation with a higher TP of RM2.96
Globetronic registered double digit earnings growth. 2Q13 net profit came in strongly at RM14.1m (+38.7% QoQ, +45.5%YoY) on the back of higher revenue of RM85.5m (+10.3% QoQ, +23.1% YoY). There was strong demand of its LED devices from its core market segments, in particular Malaysia and Singapore. Note that sales of LED devices made up the bulk of the company’s topline.
EBIT margin improved to 18.5%. We saw a 3.2-ppts margin improvement on a sequential quarter basis. This was attributable to the company’s continuous effort in improving efficiency and cost reduction measures. In this regard, management guided that currently it is able to increase its production capacity by 10% without incurring correspondingly higher cost.
Within our estimate. On year-to-date basis, 1H13 earnings of RM24.3m (+52.9%) met our expectation, accounting for 51.8% of our full year projection. Revenue, meanwhile, amounted to RM162.8m (+29.1%). Malaysia (RM19.8m) and Singapore (RM5.4m) markets remained the biggest contributors which accounted for 91% of its PBT.
Earnings upside seen. Given the bullish earnings to-date, we are optimistic of stronger future results. Hence we tweak our projections by assuming higher sales growth for its LED as well as sensors devices. These reassessments are in-line with management guidance of a higher volume coming from United States and Singapore. In this regard, we are revising upward our earnings estimates for FY13 and FY14 by 13.4% and 12.8% respectively.
Growing cash pile could lead to another round of special dividend. Cash position rose to RM131m from RM106m since end of 2012, an increase of 23.6%. Given the healthy cash level, we expect the company to declare another round of special dividend. Recall that in 1Q13, it announced an interim dividend of 2 sen as well a special dividend of 5 sen. We are estimating dividend yield to remain attractive at above 6%.
Maintain BUY. We like the company as (i) its strategy to focus on high growth areas seems to be producing the desired results, and (ii) it offers attractive dividend yield of more than 6%. Thus we reiterate our BUY recommendation on Globetronics with a higher TP of RM2.96. We arrived at the higher TP as we rolled forward the stock valuation into FY14 and pegged its multiple at 13.5x PER, which is one standard deviation above its 5-year historical average.
Publish date: 31/07/13