HWANGDBS Vickers Research 20130605

7/27/2019 HWANGDBS Vickers Research 20130605

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Refer to important disclosures at the end of this report

HWANGDBS

BUYBUYBUYBUY RMRMRMRM2.152.152.152.15 KLCIKLCIKLCIKLCI :::: 1,776.741,776.741,776.741,776.74(Initiating Coverage)

Price Target :Price Target :Price Target :Price Target : 12-Month RM 3.00

Reason for Report :Reason for Report :Reason for Report :Reason for Report : Initiate coverage

Potential Catalyst:Potential Catalyst:Potential Catalyst:Potential Catalyst: Higher sales volumes, new products

AnalystKevin WONG +603 2711 [email protected]

CHONG Tjen San +603 2711 2295

[email protected]

Price Relative

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Relative IndexRM

Globetronics Technology (LHS) Relative KLCI INDEX (RHS)

Forecasts and Valuation

FYFYFYFY DecDecDecDec ((((RMRMRMRM m)m)m)m) 2012201220122012AA 2013201320132013FFFF 2014201420142014FFFF 2015201520152015FFFF

Turnover 290 323 362 389EBITDA 93 105 116 123Pre-tax Profit 48 59 72 80Net Profit 41 51 62 69Net Pft (Pre Ex.) 41 51 62 69EPS (sen) 15.1 18.6 22.6 25.1EPS Pre Ex. (sen) 15.1 18.6 22.6 25.1EPS Gth (%) 55 23 21 11EPS Gth Pre Ex (%) 55 23 21 11Diluted EPS (sen) 15.1 18.6 22.6 25.1Net DPS (sen) 8.2 7.7 9.3 10.4BV Per Share (sen) 95.6 104.0 114.2 125.5PE (X) 14.2 11.5 9.5 8.6PE Pre Ex. (X) 14.2 11.5 9.5 8.6P/Cash Flow (X) 9.6 5.9 5.4 5.0EV/EBITDA (X) 5.2 4.3 3.5 2.9Net Div Yield (%) 3.8 3.6 4.3 4.8P/Book Value (X) 2.2 2.1 1.9 1.7Net Debt/Equity (X) CASH CASH CASH CASHROAE (%) 16.3 18.7 20.7 21.0

Consensus EPSConsensus EPSConsensus EPSConsensus EPS (sensensensen):::: 18.0 19.0 23.0Other Broker Recs:Other Broker Recs:Other Broker Recs:Other Broker Recs: B: 2 S: 0 H: 0

ICB IndustryICB IndustryICB IndustryICB Industry : TechnologyICB Sector:ICB Sector:ICB Sector:ICB Sector: Technology Hardware & EquipmentPrincipal Business:Principal Business:Principal Business:Principal Business: Electronics manufacturing & services provider

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P

At A GlanceIssued Capital (m shrs) 273Mkt. Cap (RMm/US$m) 587 / 193Major Shareholders

Wiserite Sdn Bhd (%) 18.2General Produce Agency Sdn Bhd 7.4Lembaga Tabung Haji (%) 5.4

Free Float (%) 71.8

Avg. Daily Vol.(000) 996

5 Jun 2013

Company FocusGlobetronics TechnologyBloomberg: GTB MK | Reuters: GNIC.KL

Riding the tech wave Electronics manufacturer with steady earnings and

margins

New sensor products to drive earnings, supported bystrong sales of hand-held devices

Attractive FY13F dividend (4% yield) and valuation (8xFY13F ex-cash PE)

Initiate coverage with BUY rating and RM3.00 TPBuilding a strong presence. Globetronics Technology (GTB)has been manufacturing and providing services forelectronics-related products since the 1990s. It has beenprofit-making for over a decade despite the cyclical industry.We expect FY13F net income to come in at RM51m, a recordhigh for GTB after hitting RM38m in 2000. Its new products,proximity sensors, and upcoming optical interface sensorswhich are mainly used in smartphones and tablets (S&T), areexpected to lift earnings for the next two years. The proximitysensors are expected to contribute 20% of FY13F/14F pretaxincome of RM60m/RM72m.

Rising popularity of handheld devices to drive demand.

We expect demand to remain strong in the S&T marketdriven by consistent new models releases. 1Q13 averagebook-to-bill ratio was healthy at around 1.1x and couldremain due to seasonality. New model releases (e.g. iPhone 5,Samsung Galaxy SIV, HTC One) will also support sales of S&Tproducts, which will in turn lift demand for GTBs products.Currently, its major customers include OSRAM, EpsonToyocom and ST Microelectronics.

Attractive valuation. Our RM3.00 TP is pegged to 13xFY14F EPS (>+1SD of 10-year mean forward PE). This is

justified by expectations of a record-high profit this year; itslast record was RM38m in FY2000, and it traded at 11-17x PEthen. Downside is limited by its decent 8 sen net DPS andRM0.52/net cash per share (FY13F). Rerating catalysts includesecuring major customers and supplying new products tonew industries.

MalaysiaMalaysiaMalaysiaMalaysia EquityEquityEquityEquity ResearchResearchResearchResearch PP 11272/04/2013 (031970)


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Globetronics Technology

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SWOT Analysis

StrengthsStrengthsStrengthsStrengths WeaknessWeaknessWeaknessWeakness

Established facilities and technology for electronicsmanufacturing and services

Strong portfolio with international customers Ample room for innovation and new products Well-managed operations with stable margins Profitable despite economic downturns

Relatively smaller capacity than its Malaysian peers(Unisem and MPI)

Limited installed capacity High dependence on global electronics market

OpportunitiesOpportunitiesOpportunitiesOpportunities ThreatsThreatsThreatsThreats

Tapping into new products for smartphones and tablets Inking exclusive contracts with major customers Increasing popularity of handheld devices

Downtrend of handheld devices sales Peers supplying similar products range at lower pricingwith higher volumes

Hike in raw material prices Slowdown in global demand for semiconductor andelectronics products

Source: DBS Vickers


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Company Background

True to its rootsTrue to its rootsTrue to its rootsTrue to its roots.... Globetronics Sdn Bhd was founded in 1991

by two entrepreneurs, the Ng brothers, to offer integrated

circuit (IC) burn-in services. The company gradually expanded

its business and operations over the past 20 years and now

has facilities and buildings in Bayan Lepas, Penang and Sg

Way, Kuala Lumpur. The two factories span cover over 10.7

acres and 4 acres of land area, each.

The company was listed in the Kuala Lumpur Stock Exchange

in 3 November 1997 and currently known as Globetronics

Technology Berhad with 8 subsidiaries within the group (refer

to Appendix 1).

Business Model

Manufacturer and services provider.Manufacturer and services provider.Manufacturer and services provider.Manufacturer and services provider. GTB runs a common

electronics industry business model which focuses on

assembly, packaging and testing various semiconductor and

electronic products. Its current products and services cover:

i. Integrated circuits (IC) and small outline components orIC (SOIC)

ii.

Timing and quartz crystal devicesiii. Solid state lighting (SSL) or LEDiv. Wafer processing, separation and die sortingSemiconductor products (IC and SOIC) were its bread and

butter business back in the days when the company offered

IC burn-in services. Now, it also offers die sawing, auto die

sorting and auto pure tin & tin bismuth plating services.

Fig 1: Selected GTB products

A: Sensor and encoder, B: Wafer sawing blade, C: LED

Source: Company, DBS Vickers

Given the ever changing landscape of the technology

industry, GTB has been expanding its range of products and

services to accommodate various demands along the years to

include LED, timing devices, quartz crystal devices and

proximity sensors.

Proximity sensors are the latest addition. It is utilised by its

client, a power management devices manufacturer, to

enhance battery life mainly for smartphones and tablets.

Currently, its international customers include Epson Toyocom,

Avago, OSRAM, ST Microelectronics and Cree.

Sales Trend Profitability Trend

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2011A 2012A 2013F 2014F 2015F

RM m

Total Revenue Revenue Growth (%) (YoY)

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76

2011A 2012A 2013F 2014F 2015F

RM m

Operating EBIT Pre tax Profit Net Profit


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Management Composition.Management Composition.Management Composition.Management Composition. GTB has an experienced

management team who had worked in Intel Technology inMalaysia as well as those with accounting background. The

founder and current Executive Chairman, Mr Michael Ng, has

been nurturing the company for over 20 years. He had more

than a decade of experience in the semiconductor industry

prior to setting up the company.

Key Management Team

ManagerManagerManagerManager Current appointmentCurrent appointmentCurrent appointmentCurrent appointment ExperienceExperienceExperienceExperienceMr. Michael Ng KwengChong

Non-Independent ExecutiveDirector & Executive Chairman

He is the original founder of the group in 1991. He graduated from theUniversity of London with an Honours Degree in Mechanical Engineering.His notable work experiences were with Intel Technology which spannedseveral locations including Malaysia, United States, South Korea, Taiwan,Hong Kong and Singapore. He is the brother of Dato Ng Kweng Moh,cousin of Mr. Ng Kweng Chan and uncle of Mr. Ng Kok Khuan.

Mr. Heng Huck Lee Non-Independent ExecutiveDirector & Chief Executive Officer He graduated from Universiti Sains Malaysia with a Bachelor of AppliedScience (Honours) majoring in Computer/Electronic Technology and

obtained a Master in Business Administration from East Asia University. Hiswork experiences include operations/management positions at IntelTechnology Sdn Bhd and Shinca Sdn Bhd.

Mr. Diong Chin Teck Independent Non-ExecutiveDirector

He obtained his professional training in accountancy in Melbourne,Australia and admitted as a member of The Institute of CharteredAccountants in Australia. His joined Peat Marwick (currently known asKPMG) and was made partner of the firm until his retirement in 1988.

Mr. Lim Chien Cheng Independent Non-ExecutiveDirector

He graduated from Universiti Sains Malaysia with a Bachelor of SocialScience (Honours) degree majoring in Politics and a Bachelor of Law (LLBHons) from Kings College, University of London. He has been practicingas an Advocate and Solicitor and is currently a partner in a legal firm.Currently, he is also the chairman of Chin Well Holdings Bhd.

Mr. Ng Kok Khuan Non-Independent Non-ExecutiveDirector

He graduated from Australia with a Diploma of Business Studies and is amember of the Malaysian Institute of Accountants. His work experiencesinclude positions in Central Finance Bhd and General Produce Agency SdnBhd.

Dato Ng Kweng Moh Non-Independent Non-ExecutiveDirector

He is one of the Founding Members of the group and also ExecutiveChairman of General Produce Agency Sdn Bhd. He has more than 30years of experience in rubber, palm oil, housing development andinvestment holdings.

Dato Dr Chong EngKeat @ Teoh Eng Keat

Independent Non-ExecutiveDirector

He graduated from Universiti Sains Malaysia with an Honours Degree inChemistry and a PhD in chemistry. His work experience in Intel includesmanaging manufacturing operations, technology development, anddeployment for both domestic and international scopes.

Encik Norhalim BinYunus

Non-Independent Non-ExecutiveDirector

He graduated from Universiti Kebangsaan Malaysia and is a Biologist bytraining. His work experiences include venture capital investment,commercialisation of research and nurturing-start-up companies. He iscurrently the Chief Executive Officer of Malaysian TechnologyDevelopment Corporation Sdn Bhd (MTDC).

Dato Syed MohamadBin yed Murtaza

Independent Non-ExecutiveDirector

He has over 40 years of experience in business, corporate andentrepreneurial exposures. He currently sits in the boards of PBA HoldingsBhd, MITTAS Bhd, Boon Siew Credit Bhd, to name a few.



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Appendix 1: Group structure

Note: 100%-owned unless stated otherwiseSource: Company, DBS Vickers

Globetronics Technology BhdGlobetronics Technology BhdGlobetronics Technology BhdGlobetronics Technology Bhd

Globetronics Sdn BhdGlobetronics Sdn BhdGlobetronics Sdn BhdGlobetronics Sdn Bhd- Assembly & testing of IC, optoelectronic

products and technical plating services

Globetronics (KL) Sdn BhdGlobetronics (KL) Sdn BhdGlobetronics (KL) Sdn BhdGlobetronics (KL) Sdn Bhd- Manufacturing, assembly and test of

chip carrier quartz crystal products

ISO Technology Sdn BhdISO Technology Sdn BhdISO Technology Sdn BhdISO Technology Sdn Bhd- Manufacturing of small outline components and

technical plating services

Globetronics Industries Sdn BhdGlobetronics Industries Sdn BhdGlobetronics Industries Sdn BhdGlobetronics Industries Sdn Bhd- Manufacturing of LED Lighting System

Globetronics International IncorporatedGlobetronics International IncorporatedGlobetronics International IncorporatedGlobetronics International Incorporated- Investment Holding of Globetronics (Hong Kong)

Ltd (100%); inactive

Globetronics Multimedia Technology SdnGlobetronics Multimedia Technology SdnGlobetronics Multimedia Technology SdnGlobetronics Multimedia Technology SdnBhdBhdBhdBhd

- Computer Integrated Manufacturing and systemssolutions provider

Globetronics Manufacturing Sdn BhdGlobetronics Manufacturing Sdn BhdGlobetronics Manufacturing Sdn BhdGlobetronics Manufacturing Sdn Bhd (prevGlobetronics Distribution Sdn Bhd)

- Dormant/inactive

SMSMSMSMCi Globetronics Technology Sdn BhdCi Globetronics Technology Sdn BhdCi Globetronics Technology Sdn BhdCi Globetronics Technology Sdn Bhd(49%)(49%)(49%)(49%)

- Advanced Ceramic Piece-Parts manufacturing


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Investment Thesis

Catching the smartphone and tablet wave

Proximity sensorsProximity sensorsProximity sensorsProximity sensors.... After 15 months of negotiations,

inspection and evaluation, GTB has secured a new Swiss

customer (undisclosed) for its new product. Since 2Q12, the

group has been supplying its proximity sensors to the Swiss

customer which primarily manufactures smartphones and

tablets (S&T). The sensor is specifically used in S&T products

to extend battery life.

The group initially produced 4m units in April 2012 and had

gradually increased monthly production to 8-10m units by 2H2012. Currently, it produces 19-20m units per month. At

maximum capacity, the group can produce up to 28m

units/month based on 30 operating days.

There is strong sales order visibility in the near to medium-

term as the Swiss customer has committed orders with GTB

in return for the latters capital expenditure on sensor

manufacturing equipment.

Separately, GTB could be supplying proximity sensor products

to another major US-based customer. We understand the

customer is currently in the evaluation stage.

We forecast proximity sensors will contribute

RM67m/RM70m revenues and RM13m/RM14m pretax profit

in FY13/FY14. These are based on 90%-95% utilisation rates

and annual capacity of 330m units.

As S&T shipment volume continue to exceed 150m units per

quarter (refer to Fig 3), this could lift demand for GCBs

proximity sensors and increase the supply portion within its

universe of products. GTB has guided that sensor products

contributed 7% of FY12 revenues and we are expecting the

contribution to increase to 21% in FY13. The proximity

sensor business is also tax-exempt for 10 years starting July2012.

OOOOptical interface sensors.ptical interface sensors.ptical interface sensors.ptical interface sensors. The groups next product in 2013 is

optical interface sensors (OIS), which is currently in

negotiation with a Japanese company/customer. The OIS

function is mainly to detect signals such as ambient light,

physical contact and heat. For example, it is able to detect

ambient light in order to automatically gauge and project an

appropriate brightness level for a display screen, and the

display screen automatically turns off when a user places the

device close to his/her ear.

We are positive on the new product offering due to high

demand for S&T products, while GTB has been able to deliverthe product based on its existing facilities and technology.

We forecast the OIS will contribute RM8m or 3% to FY13F

revenue because it is only in the start-up stage.

Fig 2: FY13F revenue breakdown

IC, 8%

Timing, quartzcrystal, 32%

LED, 25%

Proximitysensors, 21%

Opticalinterface

sensors, 3%Others, 11%


Timing devicesTiming devicesTiming devicesTiming devices.... GTB is also seeing strong sales contribution

(about 1/3 of group FY12 revenue) from quartz crystal and

timing device products. These products primary function is to

provide accurate timing for electronic devices based on

precise frequencies. Examples of usage include the clock

function in mobile devices and computers, and timingfunctions in fridges and microwave ovens.

GTBs biggest customer for this product is Epson Toyocom,

the largest quartz crystal supplier with over 70% global

market share. Currently, most of GTBs timing devices are

manufactured at its Sg. Way factory in Kuala Lumpur with

production of about 120m units/month. The group expects

this product to contribute 1/3 of FY13 group revenue, similiar

as last year.

We forecast this product will contribute RM16m-18m pretax

profits in FY13-15, which implies 23-26% of group pretaxprofits.


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Devices: positive sales trends

Battle of the handheld deBattle of the handheld deBattle of the handheld deBattle of the handheld devicesvicesvicesvices.... Given GTBs new sensor

products, earnings will be mainly driven by the S&T market

which is currently seeing soaring sales. Our channel checks

indicate the S&T market is currently dominated by Samsung

and Apple products. The current top and popular products

include:

Smartphones

i. iPhone 5 by Appleii. Galaxy SIV and Galaxy Note 2 by Samsungiii. HTC One by HTCiv. Lumia 920 by NokiaFig 3: Global shipped smartphones

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Shipped smartphones y-o- y

Source: IDC, DBS Vickers

Tablets

i. New iPad and iPad Mini by Appleii. Galaxy Tab series by SamsungFig 4: Global shipped tablets

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Source: IDC, DBS Vickers

However, tablet sales are more fragmented than

smartphones as the market is shared by several brands whichcould offer better pricing for similar features. In the premium

range, Apple and Samsung are currently the preferred tablet

brands.

Demand for S&T products remain commendable (refer to Fig.

3 and Fig. 4) despite weaker y-o-y growth in recent quarters

due to higher bases. This might be attributed to seasonality

as buyers delay purchases in anticipation of new model

releases.

The positive outlook for S&T demand is also supported by

strong sales registered by the two leading mobile giants,

Apple and Samsung Electronics: i) Apples iPhone and iPad

sales grew 21% y-o-y to 56.9m units in 2QFY13; and ii)

Samsung Electronics mobile segment revenue jumped 50%

y-o-y in 1QFY13.

Positive view.Positive view.Positive view.Positive view. We expect S&T to continue to dominate the

telecommunication devices market, supported by newer

models and future releases. This is in line with stronger

product competition among manufacturers and rising

profitability. Apart from the latest iPhone 5 by Apple, we also

expect strong buying interest towards the anticipated Galaxy

Note II by Samsung, iPad Mini by Apple, HTC One by HTC

and various smartphones that use Windows 8 operatingsystem (HTC, Nokia, Samsung, etc.).

The industry should do well in the next 12 months, premised

on the following: 1) strong interest and demand for new

model releases, 2) 1Q13 average book-to-bill ratio remains

healthy at 1.1x, which indicates strong overall demand; and

3) robust sales and demand in 2013.

Fig 5: Book-to-bill ratio

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Note: March 2012s ratio is a preliminary figureSource: SEMI, DBS Vickers


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Support from other segments

LED/SSL.LED/SSL.LED/SSL.LED/SSL. The group also manufactures finished components

such as LED/SSL (light-emitting diode/solid-state lighting).

These products are used in various applications and sectors

such as headlights and dashboard lighting for automotives.

The LED/SSL products are manufactured in the Penang

factory. Its major customers include CREE, AVAGO and Lite-

On which also specialise in semiconductors and electronics.

Earlier this year, the groups operations were qualified by a

major US-based niche LED player, which could turn out to be

a major customer.

GTB is currently looking to expand this business by venturing

into other sectors/areas. That includes the agriculture sector,

where it could supply LED/SSL-based lighting devices for

vertical farming (multi-level, indoor urban farming) through

its US-based customer, Illumitex.

We expect the LED/SSL division to register RM24m-RM42m

PBT in FY13F-15F.

Wafer processing business.Wafer processing business.Wafer processing business.Wafer processing business. GTB also offers die processing

services such as die sawing and mounting. Its main customer

is German company OSRAM, which contributed close to 10%

of group sales in FY12. OSRAM is expected to contributesimilar volume in FY13.

Operations are conducted at the Bayan Lepas factory with a

processing capacity of 350m dies per month at end-2012.

This year, the group is targeting to process 420m dies per

month. We estimate wafer processing will contribute 4-8%

of our group FY13-15F revenues.

Hard to ignore fundamentals

Consistent profitsConsistent profitsConsistent profitsConsistent profits (Fig. 6).(Fig. 6).(Fig. 6).(Fig. 6). Despite achieving relatively lower

net profits than its main peers, GTB has been able to remainprofitable. From FY01 to FY11, net profit ranged from

RM15.9m (FY09) to RM30.6m (FY04 and FY06) while two of

its peers registered a net loss of RM39.9m and net profit of

RM201m.

Fig 6: Net profit comparison

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Globetron ic s Un isem MPI

Source: Bloomberg Finance L.P, DBS Vickers

Similarly, GTBs net profit margins had also stood out among

peers for the past 12 financial years (refer to Fig 7). It had

been able keep margins at between 7.3% and 14.3%. In

comparison, Unisems margins had fluctuated between 1.6%

and 12.2% over the past eight years and MPIs margins were

below 9% for the last seven years.

Fig 7: Net profit margin comparison

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Globet ronic s Un isem MPI Note: Absence of particular company data indicates net loss for thefinancial yearSource: Bloomberg Finance L.P, DBS Vickers

StrongStrongStrongStrong potentialpotentialpotentialpotential dividends.dividends.dividends.dividends. The group has been distributing

attractive dividends, given its favourable net cash position.

GTB had been able to maintain net cash at above RM50m

since FY01, except in FY10 when it incurred high (RM97m)

capital expenditure to ramp up operations at the Sg Way

factory (see Fig 8 and Fig 9).


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Fig 8: Historical net cash

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Fig 9: Capital expenditure

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Referring to Fig. 10, GTB had been distributing 54-64% of

net profits in the past two years (based on 6.3-8.3 sen net

DPS) which translates into 3-4% net yield based on RM2.15

closing price. GTB has a minimum 50% net profit payout

dividend policy (gross; 37.5% net) but had been distributing

more than 50% in recent years.

Given its favourable net cash position and historical payout,

we are expecting the group to distribute 55% of net profit in

FY13-15F, which would translate into 7.8-10.5 sen net DPSand 4-5% net yields. Assuming a blue sky scenario with 70%

net profit payout in FY13/FY14, the group could pay record

high 7.0/12.0 sen net DPS which implies 5.1%-5.4% net

yields.

Fig 10: Dividends

FY11FY11FY11FY11 FY12FY12FY12FY12 FY13FY13FY13FY13FFFF FY1FY1FY1FY14F4F4F4F FY15FFY15FFY15FFY15FNet DPS (sen) 6.3 8.3 7.8 9.4 10.5

Payout ratio (%) 64 54 55 55 55

Net yield (%)* 2.9 3.8 3.6 4.4 4.9

FY1FY1FY1FY13F3F3F3F FY14FFY14FFY14FFY14F

Gross pGross pGross pGross payoutayoutayoutayoutratio (%)ratio (%)ratio (%)ratio (%)

50.050.050.050.0 77770.00.00.00.0 55550.00.00.00.0 77770.00.00.00.0

Net DPS (sen) 7.0 9.9 8.6 12.0

Net yield (%)* 3.3 4.6 4.0 5.6

*Based on last closing price of RM2.15


We expect stable annual capex of about RM35m p.a. inFY13-15F (Fig 9) on expectations of minimal spending on

new machineries. This also supports its ability to pay better

dividends in future (higher expected cashflow and stable

capex).

Key Risks

End of trendEnd of trendEnd of trendEnd of trend.... GTB, and the semiconductor market be hit the

hardest if handheld device sales trends down. However, the

impact may be softened or limited by GTBs ability to

capitalise on newer products (sensors) and find new

markets/applications (automotive, agriculture) for its

products.

Semiconductor Equipment and Manufacturer International

(SEMI; a global industry association for micro- and nano-

electronics industries) recently released its market consensus

for Dec 2012 and 2012, and 2013 forecast. SEMI is positive

on the industry: is forecasts 2013 semiconductor equipment

sales will remain above USD35bn but would drop 2.1% y-o-y

(refer to Fig 11) as the industry may be affected by a slower

economy which could reduce capacity investments. Also,

based on consensus, 2014 equipment sales are expected to

accelerate to USD42.08bn (+12.5% y-o-y) as the industry

expands along with stronger demand.

Fig 11: Industrys semiconductor equipment salesconsensus (Dec 2012)

(USDbn) 2011201120112011 2012F2012F2012F2012F YYYY----oooo----y %y %y %y % 2013F2013F2013F2013F YYYY----oooo----y %y %y %y %Wafer

Processing34.34 29.27 -14.8 29.37 0.3

Test 3.77 3.59 -4.8 3.24 -9.7Assembly &Packaging

3.34 3.17 -5.1 2.93 -7.6

Other 2.07 2.20 6.3 1.88 -14.5TotalTotalTotalTotal

EquipmentEquipmentEquipmentEquipment43.543.543.543.5 38.2238.2238.2238.22 ----12.212.212.212.2 37.4237.4237.4237.42 ----2.12.12.12.1

Note: Forecast figures based on consensus

Source: Equipment Market Data Subscription (SEMI), DBS Vickers


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Despite IC being its bread and butter business from the

beginning, GTB has not been able to compete directly with itsMalaysian peers. This is because of its smaller operation

(smaller production capacity and revenues).

If a larger company is able to secure and produce some of

GTBs newer products, its sales would be affected (unless it is

the exclusive supplier). Bigger manufacturers are able to

deliver larger volumes at lower prices due to economies of

scale.

Generally, GTB has already started to wean itself from the IC

and wafer business, and venture into higher-margin products

that see stronger demand. Therefore, it is more likely to be

affected by weaker sales as a result of a drop in sales of

handheld devices triggered by weaker demand.

Valuation

IIIInitiate conitiate conitiate conitiate coverage with a BUY rating andverage with a BUY rating andverage with a BUY rating andverage with a BUY rating and RMRMRMRM3.00 TP pegged to3.00 TP pegged to3.00 TP pegged to3.00 TP pegged to

13x FY14F13x FY14F13x FY14F13x FY14F EPSEPSEPSEPS of 23 senof 23 senof 23 senof 23 sen.... Our target PE multiple is +1SD of

the groups 10-year mean forward PE.

GTBs valuation is attractive: 1) current 11x forward FY13F PE

(8x ex-cash PE) is cheaper than peers which are trading at 26-

61x; 2) high FY13F net cash position of RM0.52/share; 3)

favourable dividend distribution with FY13F net DPS of 7.8sen (4% net yield); and 4) consistent profits despite the

cyclical industry and it has out-performed the KLCI since 2009

(refer to Fig 16). GTB could also break its record high net

income of RM38m booked in FY2000 (11-17x PE).

Earnings growth is strong against current valuation as PE-to-

growth (PEG) remained below 0.5x in the last results. We

expect PEG to remain below 1.0 for the current FY. However,

FY11 net profit fell y-o-y due to a less stable economy in

2011 following the Japan tsunami and European debt crisis.

Fig 12: PEG

FY10FY10FY10FY10 FY11FY11FY11FY11 FY12FY12FY12FY12 FY13FY13FY13FY13FFFF FY1FY1FY1FY14F4F4F4F FY15FFY15FFY15FFY15F

EPS Growth(%)

86.7 -10.2 54.9 23.0 21.4 11.2

PE (x)* 19.6 21.8 14.1 11.4 9.4 8.5

PEG (x)* 0.2 -2.1 0.3 0.5 0.4 0.8

*Based on last closing price of RM2.15


Fig 13: Peers comparison (4 June 2013)

PricePricePricePriceMarketMarketMarketMarket

CapCapCapCapPE (x)PE (x)PE (x)PE (x) PBVPBVPBVPBV

Net YieldNet YieldNet YieldNet Yield(%)(%)(%)(%)

(RM)(RM)(RM)(RM) (RMm)(RMm)(RMm)(RMm) CY12CY12CY12CY12 CY13CY13CY13CY13 CY14CY14CY14CY14 CY12CY12CY12CY12 CY13CY13CY13CY13 CY14CY14CY14CY14 CY13CY13CY13CY13Unisem 1.00 674.2 N.M. 61.2 18.9 0.7 0.6 0.6 1.8MPI 2.66 529.1 N.M. 26.0 12.2 0.7 0.8 0.8 4.8Globetronics 2.15 587.2 14.2 11.5 9.5 2.2 2.0 1.9 3.6Average*Average*Average*Average* N.M.N.M.N.M.N.M. 43.643.643.643.6 15.515.515.515.5 0.70.70.70.7 0.70.70.70.7 0.70.70.70.7

* Excluding Globetronics


Fig 14: Peers comparison (4 June 2013)

EV/EBITDA (x)EV/EBITDA (x)EV/EBITDA (x)EV/EBITDA (x) PBT Margin (%)PBT Margin (%)PBT Margin (%)PBT Margin (%) Net IncomeNet IncomeNet IncomeNet Income GrowthGrowthGrowthGrowth (%)(%)(%)(%)

CY12CY12CY12CY12 CY13CY13CY13CY13 CY14CY14CY14CY14 CY12CY12CY12CY12 CY13CY13CY13CY13 CY14CY14CY14CY14 CY12CY12CY12CY12 CY13CY13CY13CY13 CY14CY14CY14CY14

Unisem 6.8 5.8 5.1 N.M. 1.3 3.6 N.M. 224.6 64.7MPI N.M. 26.3 13.5 N.M. 2.6 4.7 N.M. N.M. 113.3

Globetronics 4.0 3.6 3.2 16.7 18.4 19.9 23.0 21.4 11.2



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FigFigFigFig15151515a: PE Banda: PE Banda: PE Banda: PE Band

-2 SD

-1 SD

Mean

+1 SD

+2 SD

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

03 04 05 06 07 08 09 10 11 12 13

PE (x)

FigFigFigFig 15151515b: PBV Bandb: PBV Bandb: PBV Bandb: PBV Band

-2 SD

-1 SD

Mean

+1 SD

+2 SD

-

0.5

1.0

1.5

2.0

2.5

3.0

03 04 05 06 07 08 09 10 11 12 13

PBV (x)


Fig16: Historical performance and highlights

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

Nov-97

Nov-98

Nov-99

Nov-00

Nov-01

Nov-02

Nov-03

Nov-04

Nov-05

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Globetronics KLCI Index

Note: GTB share price and KLCI index performance with end-1997=100.0


Dotcom bubble, 1995-2001

Weak industrysentiment; poor resultsfrom Unisem and MPI

Global economicslowdown;weaker exports

All-time high net profitof RM38m in FY00

FY10: +87% y-o-y netincome growth; highestsince FY98


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Segmental BreakdownFYFYFYFY DecDecDecDec 2010201020102010AAAA**** 2011201120112011AAAA**** 2012201220122012AAAA**** 2013201320132013FFFF 2014201420142014FFFF 2015201520152015FFFF

Revenues (RM m)

IC 84 53 44 26 18 13

Timing, quartz crystal 59 80 99 103 109 121

LED 92 87 81 81 120 140

Proximity sensors 0 0 20 67 70 74

Others 45 45 46 45 45 42

TotalTotalTotalTotal 279279279279 265265265265 290290290290 323323323323 362362362362 389389389389

PBT (RM m)

IC 4 3 3 2 1 1

Timing, quartz crystal 6 8 15 16 16 18

LED 18 17 23 24 36 42

Proximity sensors 0 0 4 13 14 15

Others 9 2 4 5 5 5

TotalTotalTotalTotal 37373737 30303030 48484848 59595959 72727272 80808080

PBT Margins (%)

IC 5.0 5.0 7.0 6.0 6.0 6.0

Timing, quartz crystal 10.0 10.0 15.0 15.0 15.0 15.0

LED 20.0 20.0 28.0 30.0 30.0 30.0

Proximity sensors N/A N/A 18.0 20.0 20.0 20.0

Others 20.0 4.8 8.9 10.3 10.6 11.0

TotalTotalTotalTotal 13.413.413.413.4 11.411.411.411.4 16.716.716.716.7 18.418.418.418.4 19.919.919.919.9 20.620.620.620.6

* EstimatesSource: Company, DBS Vickers

Sensors as earningsdriver

Includes optical interfacesensors (OIS) and waferprocessing; OIS from FY13onwards


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Income Statement (RM m)FYFYFYFY DecDecDecDec 2010201020102010AAAA 2011201120112011AAAA 2012201220122012AAAA 2013201320132013FFFF 2014201420142014FFFF 2015201520152015FFFF

Revenue 279 265 290 323 362 389

Cost of Goods Sold (212) (210) (216) (238) (266) (287)

Gross ProfitGross ProfitGross ProfitGross Profit 67676767 55555555 74747474 84848484 96969696 103103103103

Other Opng (Exp)/Inc (30) (24) (28) (28) (28) (28)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 37373737 30303030 46464646 56565656 68686868 75757575

Other Non Opg (Exp)/Inc 0 0 0 0 0 0

Associates & JV Inc 0 0 0 0 0 0

Net Interest (Exp)/Inc 0 0 2 3 4 5

Exceptional Gain/(Loss) 0 0 0 0 0 0

PrePrePrePre----tax Ptax Ptax Ptax Profitrofitrofitrofit 37373737 30303030 48484848 59595959 72727272 80808080

Tax (8) (4) (7) (9) (10) (12)

Minority Interest 0 0 0 0 0 0

Preference Dividend 0 0 0 0 0 0Net ProfitNet ProfitNet ProfitNet Profit 30303030 27272727 41414141 51515151 62626262 69696969

Net Profit before Except. 30 27 41 51 62 69

EBITDA 95 95 93 105 116 123

Growth

Revenue Gth (%) 28.3 (5.1) 9.4 11.2 12.2 7.6

EBITDA Gth (%) 38.7 0.4 (2.3) 12.8 11.1 5.9

Opg Profit Gth (%) 95.4 (18.8) 52.1 22.1 20.7 10.2

Net Profit Gth (%) 86.7 (10.2) 54.9 23.0 21.4 11.2

Margins & Ratio

Gross Margins (%) 23.9 20.6 25.4 26.1 26.5 26.4

Opg Profit Margin (%) 13.4 11.4 15.9 17.4 18.7 19.2

Net Profit Margin (%) 10.6 10.1 14.3 15.8 17.1 17.6

ROAE (%) 12.7 10.9 16.3 18.7 20.7 21.0

ROA (%) 10.2 8.8 13.2 14.9 16.3 16.5

ROCE (%) 12.2 10.5 15.2 17.5 19.4 19.4

Div Payout Ratio (%) 45.1 63.8 54.1 41.3 41.3 41.3

Net Interest Cover (x) NM 315.2 NM NM NM NM


Margins Trend

9.0%

11.0%

13.0%

15.0%

17.0%

19.0%

21.0%

2011A 2012A 2013F 2014F 2015F

Operat ing Marg in % Net Income Margin %

Maintained margins


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Balance Sheet (RM m)FYFYFYFY DecDecDecDec 2010201020102010AAAA 2011201120112011AAAA 2012201220122012AAAA 2013201320132013FFFF 2014201420142014FFFF 2015201520152015FFFF

Net Fixed Assets 172 127 111 98 84 71

Invts in Associates & JVs 5 5 5 5 5 5

Other LT Assets 15 15 15 15 15 15

Cash & ST Invts 49 99 106 143 182 224

Inventory 15 12 18 20 22 24

Debtors 50 40 67 75 84 91

Other Current Assets 0 0 4 4 4 4

Total AsTotal AsTotal AsTotal Assetssetssetssets 306306306306 298298298298 326326326326 359359359359 396396396396 434434434434

ST Debt 4 4 0 0 0 0

Other Current Liab 52 43 64 73 83 90

LT Debt 2 0 0 0 0 0

Other LT Liabilities 6 5 1 1 1 1Shareholders Equity 241 246 261 284 312 343

Minority Interests 0 0 0 0 0 0

Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab.Total Cap. & Liab. 306306306306 298298298298 326326326326 359359359359 396396396396 434434434434

Non-Cash Wkg. Capital 13 10 26 25 27 29

Net Cash/(Debt) 43 95 106 143 182 224

Debtors Turn (avg days) 58.3 61.9 67.7 80.7 80.3 82.0

Creditors Turn (avg days) 108.2 109.6 103.9 118.1 115.2 115.5

Inventory Turn (avg days) 28.1 34.0 32.2 36.2 35.3 35.4

Asset Turnover (x) 1.0 0.9 0.9 0.9 1.0 0.9

Current Ratio (x) 2.0 3.3 3.1 3.3 3.5 3.8

Quick Ratio (x) 1.8 3.0 2.7 3.0 3.2 3.5

Net Debt/Equity (X) CASH CASH CASH CASH CASH CASH

Net Debt/Equity ex MI (X) (0.2) (0.4) (0.4) 0.0 (0.6) (0.7)

Capex to Debt (%) 1,530.1 (69.0) N/A N/A N/A N/A

Z-Score (X) NA 8.8 7.7 7.2 6.8 6.6


Asset BreakdownNet FixedAssets -28.7%

Assocs'/JVs -1.5%

Bank, Cashand Liquid

Assets -41.9%

Inventory -5.8%

Debtors -22.1%

RM0.66/share


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Cash Flow Statement (RM m)FYFYFYFY DecDecDecDec 2010201020102010AA 2011201120112011AAAA 2012201220122012AAAA 2013201320132013FFFF 2014201420142014FFFF 2015201520152015FFFF

Pre-Tax Profit 37 30 48 59 72 80

Dep. & Amort. 57 65 47 48 48 49

Tax Paid (4) (3) (4) (5) (9) (10)

Assoc. & JV Inc/(loss) 0 0 0 0 0 0

Chg in Wkg.Cap. (6) 2 (17) (3) (4) (3)

Other Operating CF (22) (24) (12) 0 0 0

Net Operating CFNet Operating CFNet Operating CFNet Operating CF 63636363 70707070 61616161 99999999 108108108108 116116116116

Capital Exp.(net) (97) 3 (28) (35) (35) (35)

Other Invts.(net) 2 0 0 0 0 0

Invts in Assoc. & JV 4 0 0 0 0 0

Div from Assoc & JV 0 0 0 0 0 0

Other Investing CF 1 2 2 0 0 0

Net Investing CNet Investing CNet Investing CNet Investing CFFFF (90)(90)(90)(90) 4444 (26)(26)(26)(26) (35)(35)(35)(35) (35)(35)(35)(35) (35)(35)(35)(35)Div Paid (18) (23) (30) (28) (34) (38)

Chg in Gross Debt 5 4 (4) 0 0 0

Capital Issues 2 1 3 0 0 0

Other Financing CF 2 (6) 2 0 0 0

Net Financing CFNet Financing CFNet Financing CFNet Financing CF (8)(8)(8)(8) (25)(25)(25)(25) (29)(29)(29)(29) (28)(28)(28)(28) (34)(34)(34)(34) (38)(38)(38)(38)

Currency Adjustments 0 0 0 0 0 0

Chg in Cash (36) 50 7 36 39 44

Opg CFPS (sen) 25.2 25.0 28.7 37.5 40.9 43.6

Free CFPS (sen) (12.8) 26.7 12.1 23.6 26.8 29.8


Capital Expenditure

0

5

10

15

20

25

30

35

40

2011A 2012A 2013F 2014F 2015F

Capital Expenditure (-)

Expanded Sg Wayfactory


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Quarterly / Interim Income Statement (RM m)

FYFYFYFY DecDecDecDec 4Q4Q4Q4Q2011201120112011 1Q1Q1Q1Q2012201220122012 2Q2Q2Q2Q2012201220122012 3Q3Q3Q3Q2012201220122012 4Q4Q4Q4Q2012201220122012 1Q1Q1Q1Q2013201320132013

Revenue 58 57 70 78 85 77

Cost of Goods Sold (65) (43) (51) (58) (65) (58)

Gross ProfitGross ProfitGross ProfitGross Profit 13131313 14141414 19191919 20202020 20202020 19191919

Other Oper. (Exp)/Inc (8) (7) (7) (3) (10) (7)

Operating ProfitOperating ProfitOperating ProfitOperating Profit 5555 7777 11111111 17171717 10101010 12121212

Other Non Opg (Exp)/Inc 0 0 0 0 0 0

Associates & JV Inc 0 0 0 0 0 0

Net Interest (Exp)/Inc 1 0 1 1 1 1

Exceptional Gain/(Loss) 0 0 0 0 0 0

PrePrePrePre----tax Profittax Profittax Profittax Profit 6666 7777 12121212 18181818 11111111 12121212

Tax (1) (1) (2) (4) 0 (2)

Minority Interest 0 0 0 0 0 0

Net ProfitNet ProfitNet ProfitNet Profit 5555 6666 10101010 14141414 11111111 10101010

Net profit bef Except. 5 6 10 14 11 10

EBITDA 11 9 11 18 7 20

Growth

Revenue Gth (%) (18.1) (2.0) 22.4 12.7 8.9 (9.2)

EBITDA Gth (%) 17.6 (14.6) 23.6 58.7 (63.7) 206.5

Opg Profit Gth (%) (37.4) 37.7 63.8 51.5 (41.6) 16.3

Net Profit Gth (%) (35.1) 23.4 56.8 46.3 (21.0) (9.2)

Margins

Gross Margins (%) 22.0 25.1 26.9 26.0 23.7 24.8

Opg Profit Margins (%) 8.8 12.3 16.5 22.2 11.9 15.2Net Profit Margins (%) 8.7 10.9 14.0 18.1 13.2 13.2

Margins Trend

0%

5%

10%

15%

20%

25%

4Q2010

1Q2011

2Q2011

3Q2011

4Q2011

1Q2012

2Q2012

3Q2012

4Q2012

1Q2013

Ope ra ti ng Ma rgin % N et Income Margi n %


Lifted by sales of proximitysensors


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This document is published by HWANGDBS Vickers Research Sdn Bhd (HDBSVR), a subsidiary of HWANGDBSInvestment Bank Berhad (HDBS) and an associate of DBS Vickers Securities Holdings Pte Ltd (DBSVH). The researchis based on information obtained from sources believed to be reliable, but we do not make any representation orwarranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. Thisdocument is prepared for general circulation. Any recommendation contained in this document does not have regard to

the specific investment objectives, financial situation and the particular needs of any specific addressee. This document isfor the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees,who should obtain separate legal or financial advice. HDBSVR accepts no liability whatsoever for any direct orconsequential loss arising from any use of this document or further communication given in relation to this document.This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBS VickersSecurities Holdings Pte Ltd is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/orpersons associated with any of them may from time to time have interests in the securities mentioned in this document.HDBSVR, HDBS, DBSVH, DBS Bank Ltd, and their associates, their directors, and/or employees may have positions in, andmay effect transactions in securities mentioned herein and may also perform or seek to perform broking, investmentbanking/corporate advisory and other banking services for these companies. HDBSVR, HDBS, DBSVH, DBS Bank Ltdand/or other affiliates of DBS Vickers Securities (USA) Inc (DBSVUSA), a U.S.-registered broker-dealer, may beneficiallyown a total of 1% or more of any class of common equity securities of the subject company mentioned in this document.HDBSVR, HDBS, DBSVH, DBS Bank Ltd and/or other affiliates of DBSVUSA may, within the past 12 months, have receivedcompensation and/or within the next 3 months seek to obtain compensation for investment banking services from thesubject company. DBSVUSA does not have its own investment banking or research department, nor has it participated inany investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing toobtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in anysecurity discussed in this document should contact DBSVUSA exclusively. DBS Vickers Securities (UK) Ltd is an authorisedperson in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority.Research distributed in the UK is intended only for institutional clients.

Wong Ming Tek, Head of Research

Published and Printed byHWANGDBS VickHWANGDBS VickHWANGDBS VickHWANGDBS Vickers Research Sdn Bhders Research Sdn Bhders Research Sdn Bhders Research Sdn Bhd (128540 U)

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