MORNING CALL 29 March 2012
FLOWS;
BUYS: Benalac, Coastal, CIMB
SELLS: Genting, Kencana, Mulpha
Technical Stock Alert;
E&O (RM1.54) -
- stock well support at 1.50 level
- decending wage pattern (bullish)
- waiting for signs of macd cutting upwards
- pending resolution to SIME GO.
- stop loss 1.47/48 level downside risk of RM1.40 and RM1.30.
(AL)
COMPANY UPDATE; GLOBETRONICS (RM1.13) BUY
Innovative Tech Company transforming with the times
- Traditionally involved in integrated circuits and small outline components, the company has managed to evolve with the market trend, moving into SSL/LED components and assembly and testing of timing and quartz crystal devices. This has insulated the company to a certain extent from the cyclical boom and bust nature of the industry and kept the company profitable since listing in 1997.
- In view of the competitive nature and lower profitability in the IC/SOIC and LED space, the company has already identified a new venture to spur future earnings growth.
- The company has been in a vigorous prequalification process in the past 15 months to be finally selected by a European company to assembly more sophisticated sensor products vs. its traditional sensor, built primarily for applications in printers.
- The new micro sensors that they will be assembling are used in smart phones and tablets as an application to help battery management and thus increase battery life. Execution on this new venture is currently on going with production reaching 5-6m units/mth in May vs. 1-2m test units currently. The test units have indicated far superior efficiency with a yield of 99% vs. its customers existing suppliers in Europe with a yield of only 75%. Commercial launch of the new product will be in August by the customer by which Gtronics capacity would have
hit 20m/mth.
- Initial investment in plant and machinery for the sensor business totals RM30m, with an additional RM9m required to increase capacity to 40m/mth by year end. Amortization of machinery is taken over a 3 year period to reflect the possible short product life span. A further ramp up of production is planned in 2013 to bring production numbers closer to 100m units/mth.
- Its existing business of timing devices will also enjoy significant growth this year (with group revenue contribution rising from 30% to 34%) due to its Japanese clients consolidating and relocating production from Japan to Malaysia. This will boost output from 110m units/mth to 140m units/mth by June.
- Despite the new ventures, its balance sheet remains healthy with RM100m cash. Even accounting for this year's capex of approximately RM45m, the company will still end the year with a cash balance in the vicinity of RM85m.
- The growth in timing devices and new sensor business is projected to drive earning growth this year by approximately 30%, equivalent to net profits around RM35m. (close to its historical high earnings of RM36.8m achieved during the tech boom in 2000 when its price touched a peak of RM4.17). This earnings growth will continue in 2013 will the full year contribution of the sensor device and further ramp up of production, taking earnings to RM45m or 17sen/share (PE 6.6x based on
RM1.13.
- Healthy dividend yield is expected to be maintained as its capex will continue to be internally funded by its cash balance and strong cash flow. Its official dividend policy is set at least 50% net earnings but the management has guided for continued recent practice of paying above that level.
- We rate the company a strong buy at current levels based on being the cheapest mid cap tech company with decent yields and best play on the exponential growing smart phone and tablet space (2012 smart phone sales forecast of 600m units and tablets of 106m units). Immediate term upside earnings catalyst could be in the form of being appointed a turnkey supplier for sensors and the introduction of new hybrid 3D sensors.
FLOWS;
BUYS: Benalac, Coastal, CIMB
SELLS: Genting, Kencana, Mulpha
Technical Stock Alert;
E&O (RM1.54) -
- stock well support at 1.50 level
- decending wage pattern (bullish)
- waiting for signs of macd cutting upwards
- pending resolution to SIME GO.
- stop loss 1.47/48 level downside risk of RM1.40 and RM1.30.
(AL)
COMPANY UPDATE; GLOBETRONICS (RM1.13) BUY
Innovative Tech Company transforming with the times
- Traditionally involved in integrated circuits and small outline components, the company has managed to evolve with the market trend, moving into SSL/LED components and assembly and testing of timing and quartz crystal devices. This has insulated the company to a certain extent from the cyclical boom and bust nature of the industry and kept the company profitable since listing in 1997.
- In view of the competitive nature and lower profitability in the IC/SOIC and LED space, the company has already identified a new venture to spur future earnings growth.
- The company has been in a vigorous prequalification process in the past 15 months to be finally selected by a European company to assembly more sophisticated sensor products vs. its traditional sensor, built primarily for applications in printers.
- The new micro sensors that they will be assembling are used in smart phones and tablets as an application to help battery management and thus increase battery life. Execution on this new venture is currently on going with production reaching 5-6m units/mth in May vs. 1-2m test units currently. The test units have indicated far superior efficiency with a yield of 99% vs. its customers existing suppliers in Europe with a yield of only 75%. Commercial launch of the new product will be in August by the customer by which Gtronics capacity would have
hit 20m/mth.
- Initial investment in plant and machinery for the sensor business totals RM30m, with an additional RM9m required to increase capacity to 40m/mth by year end. Amortization of machinery is taken over a 3 year period to reflect the possible short product life span. A further ramp up of production is planned in 2013 to bring production numbers closer to 100m units/mth.
- Its existing business of timing devices will also enjoy significant growth this year (with group revenue contribution rising from 30% to 34%) due to its Japanese clients consolidating and relocating production from Japan to Malaysia. This will boost output from 110m units/mth to 140m units/mth by June.
- Despite the new ventures, its balance sheet remains healthy with RM100m cash. Even accounting for this year's capex of approximately RM45m, the company will still end the year with a cash balance in the vicinity of RM85m.
- The growth in timing devices and new sensor business is projected to drive earning growth this year by approximately 30%, equivalent to net profits around RM35m. (close to its historical high earnings of RM36.8m achieved during the tech boom in 2000 when its price touched a peak of RM4.17). This earnings growth will continue in 2013 will the full year contribution of the sensor device and further ramp up of production, taking earnings to RM45m or 17sen/share (PE 6.6x based on
RM1.13.
- Healthy dividend yield is expected to be maintained as its capex will continue to be internally funded by its cash balance and strong cash flow. Its official dividend policy is set at least 50% net earnings but the management has guided for continued recent practice of paying above that level.
- We rate the company a strong buy at current levels based on being the cheapest mid cap tech company with decent yields and best play on the exponential growing smart phone and tablet space (2012 smart phone sales forecast of 600m units and tablets of 106m units). Immediate term upside earnings catalyst could be in the form of being appointed a turnkey supplier for sensors and the introduction of new hybrid 3D sensors.