Source : The Edge Malaysia (August 27, 2012)
Electronic components maker Globetronics Technology Bhd is navigating a challenging industry landscape by continuing to tap the new growth segment of smartphones and tablets.
Earlier this year, the Penang-based outfit secured a contract to supply a Europe-based client with power management devices that are used in tablets and smartphones. Although commercial production only began in May, management expects the new product line to contribute 7% to revenue in 2012.
Globetronics' revenue for the first half of this year came in at RM126.33 million, with net profit at RM15.91 million or 5.92 sen a share. The interim results, which showed a 7.4% drop in revenue but a 14.1% increase in earnings, barely reflected its new business.
CFO Ng Kok Choon says the group beefed up its capabilities after qualifying for the contract earlier this year. "This is a new business for us. The investment in new machinery is around RM30 million for the new product line, with a capacity of 20 million units per month." The contract is for three years and can be extended, he adds.
Established in 1991, Globetronics produces components such as LEDs, timing devices, quartz crystals and integrated circuits for use in various electronics gadgets. While these products are still around, the group has been increasing its applications and sales in the smartphone and tablet segment, which is seeing burgeoning demand. This has helped the group deal with the headwinds facing the industry, and its latest product line of power management devices is contributing to its efforts to grow its revenue.
"We were not affected by the headwinds in the semiconductor industry, thanks to our exposure to the fast-growing smartphone and tablet markets. We are fortunate, but we are always on the lookout [to diversify]. The LED industry has been experiencing a glut for the past 12 months and we need to expand to grow earnings," says Ng.
Globetronics is also ramping up production for its timing devices and LED products to meet rising orders. For its timing devices, the group is increasing its capacity from 90 million to 120 million units without having to incur major expenditure as it will use its client's machinery. As for its LEDs, the company is ramping up production from 240 million to 300 million units per month to meet the order from its German client.
Globetronics expects to invest around RM40 million in capital expenditure in 2012, having spent RM30 million so far. It is looking at putting in another RM10 million for the LED and power management device business.
Ng expects LEDs, integrated circuits and timing devices to contribute 30%, 30% and 34% respectively to the group's earnings this year. "The rest should come from power management devices," he says.
Globetronics is close to getting a new contract from a Japanese client to supply it with integrated circuits. "We are close to securing the deal and are in the qualification process. We expect contributions from this in 2013," says Ng.
Shareholders recently enjoyed a special dividend of two sen per share, which is part of the group's initiative to reward shareholders, arising from a RM2.4 million gain after disposing of a factory in Jitra, Kedah, for RM8.2 million. The special dividend was declared on Aug 14, along with a second interim dividend of five sen.
Having declared dividends of four sen earlier this year, Globetronics' total payout thus far is 11 sen per share, which translate into a dividend yield of 7.1% based on the stock's closing price of RM1.55 last Thursday. Last year, Globetronics paid out dividends of 8.5 sen per share, or 85% of its earnings per share (EPS).
Ng says Globetronics has a dividend payout policy of 50% although it has been paying more than that for the past few years. "If we have excess cash flow, we will always give it to our shareholders. Nevertheless, we need to ensure that we have enough to expand our business," he says.
As at June 30, Globetronics had a RM90.8 million cash and a negligible RM460,000 in total borrowings. It generated RM18.2 million in net operating cash flow in the first half of the year.
Analysts like Globetronics for its impressive dividend yield, strong margins and good earnings growth. Last year, the group posted a net profit of RM26.7 million or 9.99 sen a share on revenue of RM265 million, which translates into a net margin of 10%.
With the new orders coming in, Affin Research expects Globetronics' EPS to grow 30% this year. "After registering RM15.1 million in core net profit for the first half of the year, our revised full-year forecast implies a core net profit of RM20 million for the second half," it says in a recent report, which indicates a target price of RM2.02 for the stock. Globetronics' share price has risen 70% in the last six months.
While Affin Research foresees the company reaching a net profit of RM35.1 million this year, Ng is more modest. "The last time we reached that level was in 2000, with RM36.8 million in net profit. I cannot promise anything, but we will certainly do our best," he says.