Globetronics in record US$12mil capex push
By Isabelle Francis April 8, 2015
- Largest investment since 1997 listing, boosted by 3yr sensor contract
- Pipeline of up to six new sensor products to be rolled out by Q3
GLOBETRONICS Technology Bhd is investing RM45 million (US$12.4 million) in capital expenditure – its biggest by far since listing in 1997 – to double its production capacity as it looks to diversify its product offerings by year-end, according to company officials.
“What we aim to establish via this volume manufacturing is cost effectiveness,” Globetronics chief financial officer Ng Kok Choon recently told Digital News Asia (DNA) via Skype.
The aim to diversify comes on the back of a three-year manufacturing contract Globetronics won in 2013 with one of the world’s key smartphone and tablet manufacturers.
“We are one of their most trusted contract manufacturing partners, with visibility of their product roadmap,” Kok Choon claimed. “As such, we don’t see any issues in the renewal of the contract.”
Citing non-disclosure agreements, Bursa Malaysia-listed Globetronics is unable to reveal who this customer is.
In a 2013 interview with DNA, where it revealed winning this three-year sensor contract, Globetronics chief executive officer Heng Huck Lee said that it had invested heavily to build capacity around the use of sensors in smartphone and tablets, especially proximity sensors to save battery life, and gesture sensors.
Working with a partner in Switzerland, Globetronics at the time claimed to be the first company in the world to integrate a proximity sensor and emitter into a single chip. Apparently, most companies cannot package this into an integrated chip due to limitations in sensitivity, as well as limitations in technology, to package it in a small enough size.
Focus on sensors and quartz crystal timing
Of the RM45-million capex, 67% or RM30 million (US$8.2 million) will be spent to install new capacity for its sensors business, while the remaining RM15 million will be for its quartz crystal timing business.
Kok Choon said it is not an issue to fund the capex internally as the company has a healthy cash flow and comfortable cash pile. As at Dec 31, 2014, Globetronics had a cash pile of RM155.72 million (US$42.75 million).
Meanwhile, corporate manager Ng Kok Yu said that the company is confident of ramping capacity to meet customers’ growing demand.
With the installation of new manufacturing lines, the group’s current production capacity of 28 million units per month will be doubled to more than 50 million units per month by end-2015.
According to Kok Yu, the company has in its pipeline between five and six new sensor products that will be rolled out as early as the third quarter of this year.
The new products include 3D imaging sensors, next-generation motion sensors, and gesture sensors, he said.
Globetronics expects the incremental revenue from these products to come in as early as its 2016 financial year (FY2016), where the sensor segment is expected to account for at least 50% of the group’s total revenue.
In FY2015, the segment is expected to contribute between 40% and 41% of total revenue. In FY2014, its sensor business accounted for 32% of revenue.
Globetronics enjoyed a record year for FY2014 as its profit after tax grew 26% year on year to RM16.47 million from RM13.1 million a year ago. Revenue rose 15% to RM89.93 million from RM78.49 million. [RM1 = US$0.27]
Kok Yu said the group hopes to sustain its 2014 EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) margins moving forward. Analysts estimate the group’s EBITDA margins to remain healthy at a minimum of 29%.
Additionally, the company is benefiting from a 10-year tax incentive granted by Malaysia’s Ministry of International Trade and Industry. Globetronic’s high-tech pioneer status allows it to enjoy a lower effective tax rate compared with other business.
Kok Yu said that the tax incentive, which was granted in June 2012, will only expire in May 2022.
He also said that with a war-chest of RM150 million, the group is looking out for acquisitions in relation to its sensor business.
“One or two” potential candidates have been identified and the company is currently conducting preliminary due diligence on the potential targets, he added.
Fragmentation key driver for M&As
According to Kok Yu, a key driver for M&A (merger and acquisition) opportunities lies in the fragmented state of the sensor industry, caused mainly by rapid technology changes that require players to keep investing to keep up.
He cautioned however that M&As will take time as there are huge hurdles to overcome, especially in the mismatch of technology and valuation.
Nonetheless, he said Globetronics’ immediate focus is to grow organically by expanding its current capacity and diversifying its product base.
“We are currently doing the product evaluation (for other segments) and getting qualification for products related to health,” he added.
Kok Yu said that despite its expansion, the group targets to sustain a 90% (of its net profit) dividend payout.
“We would like to enhance shareholder value by way of both capital gain and dividends,” he said.
For FY2014, Globetronics saw a record payout – 96% of net profit – translating to a dividend per share of 22 sen and a dividend yield of 4.5%.
Globetronics shareholders have indeed seen capital gain with the company's share gaining over 57% over the past year. The counter has been trading between RM3.39 sen and RM5.61 sen.
Brokerage house Affin Hwang in its March report raised its 12-month target price on the stock to RM6.28 (from RM5.31), based on an unchanged 16x price to earnings ratio on its revised earnings per share. This represents an upside of 16% from the RM5.47 closing price on April 7, 2015.
The research house raised its earnings per share (EPS) for FY2016 by 18% to 39.2 sen per share due Globetronics’ plan to expand its sensor business.
Yet, trading at above 18 times 2015 EPS, Globetronics shares are not considered cheap. Interestingly, foreign and institutional shareholdings are holding on, showing their support for Globetronics and their conviction in its growth story.
The main shareholders of Globetronics, which has a market capitalisation of RM1.5 billion, are Ng Kweng Chong (23.2%) and AIA (4.3%).
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