Investment Highlights

• We maintain our HOLD recommendation on ViTrox Corp (ViTrox) with an unchanged fair value of RM8.37/share. This is pegged to an unchanged FY23F PE of 33x, which is 1 standard deviation above its 3-year average and implies a 15% premium to peers’ 5-year average, to account for its market leader position among automated test equipment (ATE) makers. We ascribe a 4-star ESG rating to ViTrox, which further adds a 3% premium to our valuation (Exhibit 3).

• We retain our forecasts as ViTrox’s results came in largely within expectations, accounting for 25% of both ours and consensus’ FY22F net profit. The management has also proposed a 3.3 sen dividend, in line with past trends and our expectations of higher dividends declared in the first quarter.

• The group’s 1QFY22 revenue once again came in stronger at RM185mil, representing a YoY increase of 43%. The stellar growth is on the back of strong sales demand for its automated board inspection (ABI) and machine vision system (MVS). In tandem with the group’s revenue growth and strengthening of the US dollar, ViTrox’s 1QFY22 core profit surged 54% YoY to RM50mil.

• On a QoQ basis, the group’s 1QFY22 PBT declined 6% to RM49mil due to higher research and development expenditure. ViTrox’s expansions have also resulted in depreciation charges creeping up marginally, lowering 1QFY22 PBT margin by 2% points to 26%. Core net profit margin on the other hand improved 1% point to 27%, thanks to a reversal of tax provision from wholly-owned ViE Technologies’ pioneer status extension by another 5 years.

• The group’s headwinds continue to be supply shortages and ongoing lockdowns in China as local regulators remain firm on the zero-Covid policy. Recall that China contributed 33% of the group’s top line in FY21. We expect further guidance from management on the lockdown impact and mitigation plan on its investors briefing later today.

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

• Prospects are further brightened by the group’s diversification efforts 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 its upside potential is capped given current lofty PE valuation of 37x, which is more than 1 standard deviation of its 4-year average PE (Exhibit 4).

Source: AmInvest Research - 28 Apr 2022