Maybank IB is neutral on the recent deal announcement by Globetronics with an Indian IOT company, the research house said this due to uncertainties despite effectively guaranteeing the company a contribution of MYR10.9m over 3Y.
The less than upbeat view is over the deal’s “re-investment” portion owing to its counterpart’s OSAT inexperience, lack of established customers, and uncertainties over exit valuation guarantees. Maybank IB’s FY24-26E forecasts and TP of MYR1.05 (pegged to 21x FY25E PER) remains unchanged and maintains a SELL call.
Overview of the deal is that GTB has announced that its wholly-owned subsidiary, ISO Technology S/B (ISOT), had entered into an agreement with Kaynes Semicon Pt. Ltd. (KSPL), a wholly-owned subsidiary of Kaynes Technology India Ltd (KAYNES
IN; Not Rated) for the provision of OSAT-related “technical services”. As part of the deal, KSPL will pay ISOT a sum of USD7.6m (MYR35.9m), of which USD5.3m (MYR25.0m) will be reinvested by ISOT into convertible securities (CCPS) issued by KSPL. In return for the investment, KAYNES is required to provide ISOT with an exit opportunity either via IPO or a
strategic sale within 3 years from ISOT’s date of subscription to the CCPS.
KAYNES is an end-to-end CM for IoT-integrated electronics for a wide range of sectors. Despite its 34 years of mfg experience and 8 production plants, it does not have any prior OSAT experience. It set up KSPL with the specific aim of being its India-based OSAT unit and we understand it has no existing customers. The “technical services” that GTB will render to KSPL include the setup and transfer of a single OSAT line for matured products, such as lower-margin small outline components and general-lighting LEDs.
At best, the deal guarantees GTB a contribution of MYR10.9m (to be recognised in instalments over a 3Y horizon). Meanwhile, the house said it understands the exit value (MYR25.0m) of its “re-investment” is not guaranteed at this juncture should KAYNES fail to spin-off KSPL by the stipulated deadline post-CCPS subscription. Further, the CCPS will also likely represent a negligible c.2-3% of KSPL’s eventual equity value upon full conversion.
