Investment Highlights

• We maintain BUY on ViTrox Corp (ViTrox) with an unchanged fair value of RM9.89/share. This is pegged to a forward FY23F PE of 36x, equal to its 3-year average. We ascribe a 4-star ESG rating to ViTrox, which further adds a 3% premium to our valuation (Exhibit 4).

• Our forecasts are unchanged as ViTrox’s 1HFY22 core profit came in within expectations, accounting for 50% of our and consensus’ full-year estimates.

• The group’s 1HFY22 revenue continued its growth momentum, increasing 15% YoY to RM375mil. This is primarily attributed to stronger demand for automated board inspection (ABI) machines.

• Consequently, ViTrox’s 1HFY22 core profit rose 17% YoY to RM100mil in tandem with the group’s revenue growth and strengthening of the US dollar.

• QoQ, 2QFY22 core profit remained flattish at RM50mil, with its pretax margin improving slightly by 1.6% point to 27.7%, thanks to better product mix as growing ABI machines offset lower sales demand for machine vision systems (MVS). The lower contribution from MVS was previously guided by management given slowing China demand amid rising Covid-19 cases in 2QFY22.

• ViTrox continue to face headwinds in terms of talent and supply shortages together with dampening demand from China as local regulators remain firm on the country’s zero-Covid policy. Recall that in 1QFY22, China accounted for 28% of the group’s revenue. We expect further guidance from management, particularly on China’s MVS demand in the upcoming investor briefing tomorrow.

• We continue to like ViTrox for its attractive ABI and MVS product offerings, with a strong focus on developing A.I. capabilities. Along with its V-One data analytic platform, we believe that this will create an enhanced manufacturing ecosystem to attract new and retain existing customers. Prospects are further supported by the group’s diversified sales in terms of its geographical network, and its continuous effort to reduce customers’ concentration.

• As such, we opine that ViTrox’s forward PE of 36x (vs >40x over the past 2 years) is compelling and view that further upside appears attainable as current weak sentiments in the technology sector offer an opportunity to accumulate the stock.

Source: AmInvest Research - 29 Jul 2022