Investment Highlights

• We maintain HOLD on ViTrox Corp (ViTrox) with a higher fair value of RM7.60/share (from RM7.10/share). This is based on raised FY23F EPS, derived from 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).

• We revise upwards our FY23F/FY24F earnings by 7%/2% after ViTrox’s FY22 results came in above expectations. The FY22 core net profit of RM212mil is 12% above our forecast and 10% of consensus.

• The group’s FY22 revenue exceeded our expectation, up 10% YoY to RM750mil vs. our earlier forecast of RM723mil. This is primarily attributed to stronger demand for automated board inspection (ABI) machines.

• Consequently, ViTrox’s FY22 core profit rose 21% YoY, in tandem with the group’s revenue growth and favourable product mix which drove EBITDA margin higher by 2%-points.

• QoQ, 4QFY22 core profit remained flattish at RM54mil, with the dip in EBITDA margin (-1.5%-point to 30.6%) was offset by a 2% revenue growth. The better product mix due to growing demand for ABI machines helped to offset the impact of lower machine vision systems (MVS) sales.

• Softer demand for MVS was likely due to the sluggish performance of mobile and PC segments, exacerbated by the stiff competition from China-based machine makers, particularly within the lower-end and costsensitive space. Recall that China accounted for 34% of the group’s 9MFY22 revenue.

• Nevertheless, the well-diversified revenue base and exposure to high-growth industries remain the company’s bright spots. ViTrox’s diverse geographical presence also might help the company to capture new customers resulting from trade diversion caused by the US-China chip war, particularly in Mexico and ASEAN region.

• Management also will be taking a longer-term view on the situation in China by continuing to provide support to its customers, aiming to capture more market share and position for the next market upcycle.

• At 33x FY23F PE, the stock is trading near its 5-year historical average of 32x. We believe the stock is fairly valued at this level.

Source: AmInvest Research - 24 Feb 2023