Investment Highlights

• We maintain BUY on ViTrox Corp (ViTrox) with an unchanged fair value of RM8.96/share. This is pegged to an unchanged FY23F PE of 36x, equal to its 3-year average. We ascribe a 4-star ESG rating to ViTrox, which adds a 3% premium to our valuation (Exhibit 4).

• Our forecasts are unchanged as ViTrox’s 9MFY22 core profit came in largely within expectations, accounting for 79% of our full-year FY22F earnings and 75% of consensus’. As a comparison, the company’s historical 9M earnings account for 73%-77% of full-year net profit over the past 3 years.

• The group’s 9MFY22 revenue continued its growth momentum, increasing 13% YoY to RM560mil. This is primarily attributed to stronger demand for automated board inspection (ABI) machines.

• Consequently, ViTrox’s 9MFY22 core profit rose 17% YoY to RM150mil in tandem with the group’s revenue growth and strengthening of the US dollar.

• QoQ, 3QFY22 core profit remained flattish at RM51mil, with pretax margin improving slightly by 0.8% point to 28.5%. The better product mix due to growing demand for ABI machines helped to offset the impact of lower machine vision systems (MVS) sales.

• The softer demand for MVS was likely due to the sluggish performance of mobile and PC segments, exacerbated by China lockdowns which led to delays in customer orders. Recall that China accounted for 29% of the group’s 1HFY22 revenue.

• Nevertheless, market demand for ABI remains robust, supported by the growing telecommunication and automotive segments.

• We continue to like ViTrox for its attractive ABI and MVS product offerings, with a strong focus on developing A.I. capabilities. The exposure to high-growth industries such as the telecommunication, electric vehicles and autonomous driving industries bode well for the company.

• Prospects are further supported by the group’s diversified sales with an established geographical network, and its continuous effort to reduce customers’ concentration.

• From a valuation perspective, we opine that ViTrox’s FY23F PE of 30x (vs >40x over the past 2 years) is compelling.

Source: AmInvest Research - 28 Oct 2022