Thursday, 30 April 2015

Gtronic: High PE For A Good Reason

Globetronics FY15Q1 Financial Result

Revenue 88.7 89.9 91.1 90.6 83.4
Gross Profit 25.8 17.8 27.1 27.1 25.0
Gross% 29.1 19.8 29.7 29.9 30.0
PBT 20.4 16.6 21.8 20.8 17.0
PBT% 23.0 18.5 23.9 23.0 20.4
PAT 17.1 15.3 17.7 17.3 14.1

Total Equity 280.4 284.6 298.3 291.4 272.4
Total Assets 342.4 358.0 362.9 361.2 325.9
Trade Receivables 68.4 73.7 65.9 70.3 60.6
Inventories 15.0 19.0 15.2 13.4 11.1
Cash 159.0 155.7 167.8 169.5 141.0

Total Liabilities 62.1 73.4 64.6 69.8 53.5
Trade Payables 17.2 33.5 16.3 17.2 9.9
Other Payables 25.9 33.7 31.4 32.1 29.8
ST Borrowings 14.8 1.7 8.1 11.5 9.9
LT Borrowings 0.0 0.0 0.0 0.0 0.0

Net Cash Flow 2.8 8.2 20.7 22.6 -6.3
Operation 12.4 81.6 52.4 34.5 13.2
Investment -0.6 -21.4 -17.0 -10.9 -7.1
Financing -8.9 -52.0 14.7 -1.0 -12.3

Dividend paid 22.5 61.8 30.9 19.6 19.6

EPS 6.1 5.45 6.31 6.17 5.04
NAS 1.00 1.01 1.06 1.04 0.97
D/E Ratio net cash net cash net cash net cash net cash

Gtronic's FY15Q1 result is flat but profit margin "normalized" compared to previous quarter. Bank borrowing increases as more capex is needed.

Apart from these, there is nothing more to comment on this set of financial result.

Boring is it? Not at all for me!

Gtronic investors' eyes are on year 2016.

If we look back at Gtronic's previous years' result, we can see that its revenue and net profit especially, started to increase significantly since year 2012.

What actually happened in year 2012?

In that year, Gtronic started to produce proximity sensor used in smartphones for a Swiss customer.

         Tremendous growth of sensor revenue

We can see from the chart above how sensor business has contributed significantly to Gtronic's topline since 2012.

Will the growth continue beyond 2014?

Not only it certainly will, it is expected to grow by leaps and bounds, in which revenue from sensor division may double 2014's figure in year 2016!

How to achieve such an impressive growth?

Other than proximity sensor which currently has 23mil monthly capacity, Gtronic has started production for wearable sensors since end of 2014.

Capacity for wearable sensor has been ramped up from 3.5mil to 5.5mil/month now.

According to analyst, current average usage are at 20mil/month and 3.5mil/month for proximity and wearable sensors respectively.

So, with new contribution from wearable sensors and slight expansion of its timing device capacity (+10mil/month), Gtronic is expected to register modest growth in FY2015.

It's not finished here.

Gtronic plans a capex as much as RM60-70mil for 2015-16. This tells how much its business can potentially grow.

It plans to start production of a new product - imaging sensor (depth sensor module) in Q4 of 2015 at 4-5mil/month. This sensor is used to improve camera quality in smartphones and tablets.

Its production is expected grow quickly to 20mil/month by Q1 of 2016, and is expected to feature in a famous brand smartphone which is scheduled to launch its latest model with major camera upgrade in Q3 of 2016.

The volume of 20mil/month is almost similar to the volume of proximity sensor. As the average selling price of this imaging sensor is definitely higher than proximity sensor, contribution of imaging sensor will surely exceed proximity sensor.

Each smartphone will have only one proximity sensor and tablet without call function may not have one. For imaging sensor, it can be used in front and/or back cameras of smartphones and even tablets without call function. So imaging sensor might have more volume compared to proximity sensor.

RHB analyst predicts that imaging sensor can potentially generate revenue of RM180-250mil a year!

       Forecast growth in sensor division

Gtronic's Swiss customer is said to work on the improved 2nd generation of proximity sensor. Base on their close business relationship, Gtronic should be able to sustain or improve its revenue from proximity sensor in the near term.

Besides, Gtronic is said to be in talk with 2 potential new customers in Europe & US which include co-development of multi-die health sensor module. If successful, it will boost Gtronic's revenue and earning further.

According to AllianceDBS report, Gtronic has only one single customer so far for its sensor business which includes proximity sensor, wearable sensor and upcoming imaging sensor.

So there is a single customer risk.

This main customer is called "Swiss customer". We know that Inari has Avago, but who is this Swiss customer, and who is the end-customer with a famous smartphone brand?

This Swiss company is described as a pioneer and world leader in wafer-scale micro-optics. 

From net search, I think it is most probably Heptagon which is a Swiss company who has a main office in Singapore, and the end-customer should be the one with "A" which launched its wearable device recently.

       Heptagon's role in a smartphone

Article below are press release from Heptagon in Feb14. Do you think it is related to Gtronic?


Heptagon Announces Production-Ready 3D Array Camera for Smart Devices 
First fully integrated 3D imaging system ready for mass production in smart phones, tablets and phablets 

Singapore, Feb 13 2014. – Heptagon (, a leading provider of intelligent micro systems for smart devices, today announced the general availability of its TrueD H2 array camera, the first in a series of advanced 3D imaging and depth sensing micro systems that Heptagon is introducing to the market. The TrueD H2 camera has one of the smallest form factors currently available for mass production. 

Heptagon’s TrueD H2 array camera captures additional short-range depth information for gesture and user recognition, background removal, and enhanced imaging. Its key features are typically used for front-facing smart device cameras, but can also add value as an assisting camera to the smart device’s primary camera. 

The TrueD H2 array camera is ultra-miniature, the result of integration of its image sensor, module, optics, algorithms, and software. It is ideal for devices where size is a key differentiator, or for emerging applications such as 3D or immersive mobile video games, ‘augmented reality’, and even the explosion of ‘selfies’ with more sophisticated image manipulation and enhanced photography.

“Smart device innovations continue at warp speed, transforming the ways people interact with their devices. So, our challenge is to deliver micro imaging and sensing systems for these devices with enhanced capabilities, ultra high quality, ever-shrinking form factor and optimal cost,” said Rene Kromhof, Heptagon’s vice president of sales and marketing. “With the TrueD H2 array camera, we have proven our ability to innovate rapidly and produce high-volume, market-ready solutions that meet customers’ unique and demanding requirements.” 

In addition to enhanced depth mapping, exceptionally low z-height for ultra-slim device design, superior color fidelity and low power consumption, the TrueD H2 array camera leverages unique, patented focus correction packaging (FCP) that accelerates low cost, high quality production. FCP enables high-throughput, low cycle time module assembly, without the need for active alignment systems or barrel-mount solutions. In addition to faster line production, FCP also drives higher yield and therefore lower overall unit costs – important benefits for rapid, high volume manufacturing of smart devices. 

“We are extremely proud that our TrueD H2 array camera has already moved from development stage into volume production,” said S.C. Leong, Heptagon’s chief operating officer. “We appreciate the incredible efforts our team and our partners have put into achieving this milestone.” 

The TrueD H2 2x2 array camera is the result of more than three years of development efforts from Heptagon. The 2014-15 pipeline will include new array formats, lens enhancements, higher resolution, and additional sensing system innovations. In addition, Heptagon has recently released products that help to radically reduce the height and total footprint of smart devices, including VCSEL based illuminators and some of the world’s smallest IR emitters.


No matter what, if everything goes well according to plan, year 2016 might be a wonderful year for Gtronic.

So, is current PE of 26x too high for Gtronic?

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