Investment Highlights

• We maintain HOLD on ViTrox Corp (ViTrox) with unchanged fair value of RM10.56/share, pegged to an FY22F PE of 35x. This is at a slight premium above our benchmark target PE for large-cap automated test equipment (ATE) players of 33x, given the group’s technology leadership and higher market cap. We maintain our forecasts.
• The benchmark 33x PE represents a 50% premium over the 3- year historical forward PE of 22x as prospects brighten for the ATE sector riding on innovations such as 3D sensors, Industry 4.0, electric and autonomous vehicles, and 5G. Accelerated by the Covid-19 pandemic, these innovations have also benefitted from the US-China tech decoupling.
• ViTrox’s 3QFY20 results were in line with expectations, recording a core profit of RM30mil which brings 9MFY20 core profit to RM77mil, after excluding RM4mil exceptional loss from net inventories written down. The results accounted for 77% of our full-year forecasts and 74% of consensus estimates.
• YoY: 9MFY20 core profit rose 22% amid optimal production capacity as revenue climbed 27% on higher demand for its machine vision systems (MVS) and automated board inspection (ABI) in 3QFY20 which surged 122% and 66% YoY respectively. 3QFY20 was also ViTrox’s highest quarterly revenue to date at RM124mil. To recap, in 1HFY20, MVS and ABI accounted for 40% and 58% of the group’s revenue.
• QoQ: 3QFY20 core profit increased 20% while revenue expanded 28% as MVS and ABI demand was supported by favourable market conditions and the positive response to the group’s new products introduced.
• Outlook: ViTrox is cautiously optimistic on its FY20F prospects despite the Covid-19 pandemic due to its more diversified business model and as the group has not seen significant negative impact from Covid-19. The outlook for its MVS and ABI segments remains relatively positive while the group will continue to focus on market expansion, strengthening customer ties and product innovation alongside taking more prudent cost controls.
• We continue to like ViTrox due to its leadership in MVS and ABI, alongside its following key merits: (i) market diversification efforts targeting high-growth regions i.e. Taiwan and China; and (ii) its focus on product innovation and improvements in lead time to strengthen its portfolio offerings. However, we deem that the stock is fairly valued at the current price.

Source: AmInvest Research - 23 Oct 2020