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ViTrox Corp Bhd
(April 30, RM5.17)

Maintain hold with an unchanged target price of RM5.24: ViTrox Corp Bhd remains upbeat and guided for another record-breaking quarter for its second quarter of 2018 (2QFY18). However, we remain neutral and opine that this is reflected in the current rich valuation. All product lines are projected to experience solid gains on the back of strong demand. Tax rate should normalise once electronic communication system’s pioneer status is renewed in 2Q18. Bill to book is admirable at 1.2 times as at end-1Q18.

As we had anticipated, 2QFY18 guidance was bullish and could potentially record another all-time-high quarterly revenue. However, we are not overly excited and believe that this has already been priced in.

Challenges remain, including US dollar depreciation, raw material sourcing, floor space constraint, and relocation to new Batu Kawan Campus 2.0.

ViTrox’s 1QFY18 sales grew 1% year-on-year (y-o-y) and contributed 13% of overall sales. 2QFY18 order backlog remains solid at 538 versus 476 systems in 1QFY18. 2QFY18 is expected to be rather flattish with turnover projection of RM15 million-RM18 million (midpoint: +0.5 y-o-y and +67% quarter-on-quarter [q-o-q]). It plans to complete wafer vision inspection handlers buy-off from a MEMS-based microphone manufacturer in Penang and Suzhou. Recall that we highlighted earlier that ViTrox targeted to double the shipments to four units in financial year 2018 (FY18) as part of its aspiration to move up in the semiconductor supply chain which may yield a better margin.

Due to seasonal and high base effects, 1QFY18 sales declined 17% y-o-y and 63% q-o-q, accounting for 13% of overall sales. Twenty to 25 units are expected to be delivered in 2QFY18 versus 10 in 1QFY18 and eight in 2QFY17. Outlook is improving with demands from US, China, the Philippines, and Taiwan. 2QFY18 revenue is projected to range from RM20 million to RM25 million (midpoint: +127% q-o-q and +99% y-o-y). ViTrox has shared that this is achieved based on normalised average selling price, unlike in 4Q17 when high orders were secured at the expense of pricing.

Sales surged by 19% y-o-y but fell 4% q-o-q to account for 70% of 1QFY18 turnover. Backlog was still very encouraging as of April 6 with 36 advanced optical inspection (AOI) units and 19 advanced X-ray inspection (AXI) units worth a total of RM39.7 million. 2QFY18 revenue is estimated at RM53 million to RM56 million (midpoint: +0.2% q-o-q and +14% y-o-y). It is also expecting additional purchase orders worth about RM20 million for four different products. Capacity has reached bottleneck in order to win big deals which require output of 36 systems per month compared with current’s 24.

Maintain “hold” with an unchanged TP of RM5.24, pegged at 20 times of FY19 earnings per share. 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. — Hong Leong Investment Bank Research, April 30

Photo Credit: Vitrox