By Xavier Kong
Globetronics Technology Bhd is a local electronics player that has seen its share price on the up-and-up, with news coming in about an enlarged market for the group. Coupled with its positive earnings track record, is Globetronics the safe port in the storm for the volatile electronics market?
Business model: Founded in 1991 in Bayan Lepas, Penang by Michael Ng Kweng Chong, Globetronics Technology Bhd identifies itself as a player in the electronic components market, serving the semiconductor and electronics industries.
Specifically, the group engages in the manufacture, assembly, testing, and sale of integrated circuits, chip carrier quartz crystal products, optoelectronic products, light-emitting diodes (LED) lighting systems, LED components and modules, small outline components, as well as sensors and optical products.
At the same time, the group also provides computer hardware and software, system solutions and consultations, technical plating services, and trades electronics or semiconductor components. The group’s primary operations zones are Malaysia, Singapore, the US, and China.
Shareholders and management: The largest shareholder remains the founder of the group Ng, with a 15.19% stake in the group. Following him as the second-largest shareholder is General Produce Agency Sdn Bhd, which holds a 7.28% stake. The founder’s cousin, Ng Kweng Tong, is a director on the board of General Produce Agency, and he holds a stake of 0.08%. The Employees Provident Fund comes in as the third-largest shareholder with a stake of 3.68%.
Other than being the founder and the largest shareholder, Ng also serves as the group’s executive chairman. Joining him on the board is his brother Ng Kweng Moh, as well as his nephews Ng Kok Khuan and Ng Kok Kee. The founder’s cousin Ng Kweng Tong was also on the board, but had resigned on July 1, 2014.
Share price performance: Globetronics has been on the up-and-up for the past year. Taking the group’s closing share price of RM4.61 on July 24, 2014, the group has seen a rise of RM1.44 to close at RM6.05 on July 24, 2015.
However, it should also be noted that the group’s share price had fallen to RM3.77 on Oct 16, 2014, which means the group had actually seen a slightly steeper climb of RM2.28 over the course of about nine months.
What analysts think: One of the first things noted by Maybank IB is that the group could very well be looking at an enlargement of its addressable market, specifically for its sensor division. This is attributed to the differentiation via new sensing capabilities and applications in new launches of smart devices, which will see the adoption of multiple sensors within one device.
“In the past three years, the sensor division accounted for most of the group’s revenue growth (two-year compound annual growth rate or CAGR of 137%) and this is set to expand further with the introduction of a new wearable sensor in end-2014, and a new smartphone 3D-imaging sensor by end-2015,” said Maybank IB, adding that, with this ongoing push up the value chain, the research house projects a strong three-year net profit CAGR of 23%.
AllianceDBS Research, on the other hand, is upbeat on the group’s new depth-imaging sensor, which the research house believes will boost revenue significantly, and drive a three-year earnings CAGR of 25%.
“Globetronics’ end customer is likely to introduce a major camera upgrade in its next-generation smartphone model in 2016. The upgrade involves a new depth-imaging sensor produced by Globetronics. In short, we expect Globetronics to secure orders for additional components from end customers, besides the current proximity sensor,” said AllianceDBS.
Maybank IB also highlighted the point that the group has been maintaining a track record of 18 years of unbroken profitability despite operating in a volatile market, which the research house attributed to “prudent, experienced management” and the group’s “careful investments and longstanding relationship with key clients”.
Earnings forecast:
StockStalk: An unbroken profitability record of 18 years really speaks for the group itself, not to mention the projected earnings CAGR of between 23% and 25% by research houses. Globetronics’ sensor division has really boosted the group since it started to see success since 2012.
As such, investors looking for an electronics stock to add to their portfolios may be interested in looking at Globetronics.
However, the warning here is that entry will be expensive, and it does not seem likely to get cheaper as time proceeds. The group’s share price has stayed above the RM5 mark since March 18, 2015 at RM5.19, and barring July 8, 2015 when the stock closed at RM5.44, Globetronics has stayed above the RM5.50 mark since April 8, 2015, when it closed at RM5.66.
Considering the likely enlargement of its addressable market, as well as the depth-imaging sensor upgrade coming for the group in 2016, there looks to be quite a bit of upside left for the stock price to grow to.
On the other hand, it was also noted by AllianceDBS that the group is maintaining a strong balance sheet, evidenced by the group sitting on a net cash position of RM144 million as of March 31, 2015. This would be able to comfortably fund the group’s capital expenditure, and still allow for a generous dividend payout of more than 90%.
Still, investors are also warned about the fact that a lot of these ride on the group’s single customer for its sensor division, a Swiss-based customer which supplies proximity sensors to a smartphone maker, again a single end customer. While the risk here is mitigated by the strong relationship between Globetronics and the Swiss customer, it is still something for investors to consider.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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