Investment Highlights

• We maintain a HOLD call on ViTrox Corp (ViTrox) with a higher fair value of RM8.65/share (from RM7.60/share), derived from a rolled forward FY24F PE of 36x on a revised EPS. We ascribe an unchanged 4-star ESG rating to ViTrox, which incorporates a 3% premium to our valuation (Exhibit 4).

• We lowered our FY23-FY25F earnings by 10%-23%, assuming more conservative sales estimates, after the group’s 2QFY23 results fell short of expectation. 1HFY23 core net profit of RM71mil only accounts for 31% of our FY23F earnings and 35% of consensus. As a comparison, 1H2022 accounted for 49% of FY22 core net profit.

• YoY, 1HFY23 revenue slipped by 25%, mainly attributed to lower demand of back-end semiconductor equipment in its MVS segment due to the global economic slowdown. 1HFY23 core net profit declined by 34% YoY in tandem with the lower revenue and higher operating costs as EBITA margin dropped 1.8%-point to 26.7%.

• QoQ, 2QFY23 revenue improved by 12% thanks to a moderate recovery in demand of MVS and ABI segments. However, 2QFY23 core net profit declined slightly by 4% QoQ due to the deterioration of EBITDA margin by 3.6%- point to 25%, impacted by weaker operating leverage.

• Despite the reported weak earnings, we find comfort in the group's well-diversified revenue base and its exposure to high-growth industries, which are the company's bright spots. Hence, we anticipate a stronger 2HFY23 demand from its Automated Board Inspection (ABI) and Machine Vision System (MVS) segments as compared to 1HFY23.

• Additionally, ViTrox's geographical diversity may play a crucial role in capturing new customers arising from trade diversion due to the US-China chip war, particularly in Mexico and the ASEAN region.

• The group is continuing to support its customers in China despite a slower-than-expected demand recovery. This strategic move aims to increase market share and position the company for the next market upcycle. Impressively, ViTrox made a significant impact at the recent "SEMICON China" trade fair in Shanghai, China, where it received overwhelming inquiries about its MVS segment.

• At a FY24F PE of 36x, the stock is trading in line with its 5- year historical average. Hence, we believe the stock is fairly valued at this level.

Source: AmInvest Research - 28 Jul 2023