Investment Highlights

• We maintain HOLD on ViTrox Corp (ViTrox) with an unchanged fair value of RM7.60/share. This is based on 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).

• 1QFY23 core net profit of RM33mil accounts for 15% of our full-year FY23F earnings and 16% of consensus. No changes were made to our earnings as we deem the results to be largely within expectations given the anticipation of recovering demand in 2HFY23, particularly from semiconductor back-end customers.

• In line with net earnings, 1QFY23 revenue of RM133mil (- 30% QoQ, -28% YoY) stands at 17% of our full-year forecast. The decline in sales compared to the same period last year was mainly attributed to lower demand for Machine Vision System (MVS) equipment.

• Consequently, ViTrox’s 1QFY23 core profit dipped 35% YoY, in tandem with the drop in the group’s revenue and deterioration of EBITDA margin by 1%-point, likely due to the unfavourable forex trend.

• QoQ, 1QFY23 core profit declined 38% as revenue dropped 30%, attributable to the temporary downturn of Automated Board Inspection (ABI) and Machine Vision System (MVS) demand. Notably, EBITDA margin deteriorated 4%-points due to weaker operating leverage.

• Despite the weak earnings reported, we believe the group’s 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.

• The group is also taking a longer-term view on the situation in China by continuing to provide support to its customers despite slower-than-expected demand recovery, aiming to capture more market share and position for the next market upcycle.

• At 34x FY23F PE, the stock is trading above its 5-year historical average of 32x. We believe the stock is fairly valued at this level.

Source: AmInvest Research - 28 Apr 2023