Highlights
- Since our upgrade on 28 Feb, share price has gained 115% supported by (1) superior financial performance; (2) bullish guidance supported by excellence in execution; (3) favorable industry outlook; (4) US$ strength; and (5) bonus issue.
- After achieving record high revenue and core PAT in 1Q17, it guided for a back-to-back record breaking streak in 2Q17.
- For 2Q17, we expect revenue to reach RM75-78m translating into a core net profit of RM20-23m.
- While 2Q17’s growth will be mainly driven by MVS-S and ABI, MVS-T is expected to make a strong comeback in 2H17 with orders coming from SEA and China as clients gear up for the major product launches towards year end.
- Channel check reveals that SRM, major customer for MVS-S, is also experiencing robust growth in FY17.
- Based on our assumptions, ViTrox is running at full capacity in terms of floor space. However, ViTrox does not view this as a limitation as it may temporarily rent from the factory next door if required while waiting for Campus 2.0 in Batu Kawan with readiness targeted by end of FY17.
- Sourcing of critical components remains a key delivery risk.
- In the recent courtesy visit by FMM (Federation of Malaysian Manufacturer), ViTrox showcased its product capabilities and attracted strong interests from other industry verticals.
- While this is very preliminary, ViTrox and an industry player are exploring ways to further automate production (finished goods inspection) to enhance efficiency and reduce human labor amidst migrant worker clampdown by government.
- SEMI posted US$2.27bn in billings worldwide in May 2017 (3- month average basis), up 6.4% mom and 41.9% yoy.
- ViTrox’s book-to-bill ratio remains healthy at 1.39 in Apr 17.
Risks
- FOREX, downturn in semiconductor demand and equipment spending, patent infringement and technology imitation.
Forecasts
- Modify our sales assumptions while tweaking gross margins thanks to economies of scale. In turn, FY17-19 EPS forecasts are raised by 8.7%, 22.7% and 22.6%, respectively.
Rating
BUY ↔ , TP: RM4.54 ↑- ViTrox is poised to win more market share in the advent of global semiconductor growth leveraging on its technology leadership in machine inspection, especially in 3D-AOI and AXI. A beneficiary of stronger USD also. However, MVS-S sales are highly dependent on single customer and majority of sales are non-recurring.
Valuation
- Raise TP by 29% from RM3.52 to RM4.54 reflecting upward earnings revision, pegged to P/E multiple of 20x (previously 19x) in line with global peers’ average .
- Maintain BUY rating pending 2Q17 results analyst briefing slated on 18 Aug.
Source: Hong Leong Investment Bank Research - 03 Aug 2017
http://klse.i3investor.com/blogs/hleresearch/129108.jsp
