Investment Highlights

• We maintain our HOLD recommendation on ViTrox Corp (ViTrox) with a lower fair value of RM7.45/share (previously RM9.56/share), after adjusting for a 1-for-1 bonus issue that was completed in January 2022.

• Malaysia’s technology sector has mirrored the Nasdaq’s performance, which has slipped 13% since the beginning of the year amid expectations of rising interest rates. Consequently, ViTrox CY22F PE dropped from a high of 50x in Dec 2021 to 35x currently. As such, we have reflected the lower earnings multiple in our valuation to better represent 2022 market sentiments.

• Our fair value is now pegged to a normalised 33x FY22F PE (previously FY22F PE of 44x), which represents ViTrox’s 3-year average forward PE. We ascribe a 4-star ESG rating to ViTrox, which translates to a 3% premium to our valuation (Exhibit 3).

• For FY21, ViTrox recorded its highest revenue to date at RM680mil, a YoY jump of 45% from RM470mil in FY20. This is on the back of resilient sales from the automated board inspection (ABI) and machine vision system (MVS) segments.

• The group’s full-year core profit surged 58% YoY to RM176mil, driven by higher revenue, a 3%-point improvement in pretax margin from lower operating costs and an appreciation of the US dollar. This was 1% above consensus and 7% above our estimates. We have fine-tuned our FY22F and FY23F to account for robust demand for its machineries.

• On a QoQ basis, ViTrox’s revenue grew by 10% to RM186mil, with a higher PBT growth of 20% to RM52mil. This is the result of effective cost control by management, which translated to a higher PAT margin of 28% (+2%-points).

• We continue to like ViTrox premised on its attractive ABI and MVS product offerings, propelled by the advancement in technology such as Industry 4.0, electric and autonomous vehicles, and the deployment of 5G network infrastructure.

• Prospects are further brightened by the group’s diversification effort into high-growth markets such as Taiwan and China, as well as management’s commitment to focus on product innovation and lead time improvements. However, we are of the view that the upside potential is capped given lofty FY22F PE valuations of 35x currently.

Source: AmInvest Research - 25 Feb 2022