Investment Highlights

• We initiate coverage on ViTrox Corp (ViTrox) with a HOLD recommendation. Our fair value of RM10.56/share is pegged to an FY22F PE of 35x, a premium above its local market-cap weighted average PE due to its technology leadership which will benefit from higher semiconductor back-end demand riding on the adoption of 5G, artificial intelligence (AI) and Industry 4.0 developments.

• We expect the group to register net profits of RM101mil, RM120mil and RM142mil respectively in FY20F–FY22F, representing earnings growth of 26%, 19% and 18% YoY respectively.

• ViTrox is principally involved in the development of 3D and line scan vision inspection system and system-on-chip embedded electronic devices for the semiconductor and electronics packaging industries.

• As at FY2019, the group has 504 customers where 73% of its products and services are exported to more than 40 countries in the world with applications in customer segments such as telecommunication, automotive, mobile devices, computing, consumer, industrial and medical.

• ViTrox’s key investment merits are as follows:

i) Market diversification targeting high-growth regions i.e. Taiwan and China;

ii) Focus on product innovation to strengthen portfolio offerings;

iii) Drive improvements in end-to-end lead time.

• After a weaker 1HFY20 impacted by the effects of the virus pandemic, we are optimistic of a gradual earnings recovery in 2HFY20 supported by a robust pipeline for its key business units. Growth will be underpinned by Taiwan and China while other regions see a comeback in orders after being hit by Covid-19 uncertainties.

• We like ViTrox as we believe that its leadership in machine vision system (MVS) and automated board inspection (ABI) business units, and focus on product innovation to strengthen its product offerings will benefit from the adoption of technological megatrends aforementioned. However, we are cautious in the near term due to uncertainties relating to the Covid-19 pandemic as well as the US-China trade war. We believe that the stock is fairly valued at its current price.

Source: AmInvest Research - 1 Oct 2020