Investment Highlights

• We maintain HOLD call on ViTrox Corporation (ViTrox) with an unchanged fair value of RM8.40/share, derived from FY24F PE of 36x, in line with its 5-year average. We ascribe an unchanged 4-star ESG rating, which incorporates a 3% premium to our valuation (Exhibit 3).

• Our forecasts are maintained following an analyst briefing on last Friday. Key takeaways include:
  • The company continues to face clouded near-term visibility for orders across all segments as customers exercise caution in placing orders and making capex investments to avoid excess inventory.
  • According to SEMI, global sales of semiconductor manufacturing equipment by original equipment manufacturers (OEMs) are expected to decline by 19% this year, albeit with optimism for a 15% improvement in 2024. Management believes that 1QFY23 might be the bottom and anticipates stronger sales in 2HFY23 compared to 1HFY23. The optimism is based on a gradual recovery in the semiconductor industry and backlogged orders from 1HFY23.
  • The Machine Vision System Standard segment, which manufactures 2D and 3D inspection systems for back-end semiconductor assemblies and test industry, contributed 11% of total group revenue in 2QFY23. Short-term stability is expected in the next quarter with the company having a significant backlog from an original design manufacturer, with some orders expected to be recognised in 2HFY23. Moreover, the company is eyeing short orders from active sectors like automotive and telecommunications. Long-term strategies involve diversifying its market presence and clientele based in Southeast Asia while adding new AIpowered features like Auto-learn and Auto Setup to retain customer interest.
  • Management anticipates delivering more Machine Vision System Tray machines in 2HFY23. The company plans to expand sales and service coverage to capture more orders and gain market share in China. Although intensifying competition and slower market demand are impacting sales and average selling prices, the company aims to stand out through product innovation such as improving throughput by developing an auto tray loading and unloading system with autonomous mobile robot integration.
  • Management foresees the continuation of delivering backlog orders in 2HFY23 for the automated board inspection segment. Vitrox also expect potential orders from the automotive, telecommunication infrastructure and computing sectors in China, Mexico, USA and India as customers continue investing in these regions.
• At a FY24F PE of 35x, the stock is trading near to its 5-year historical average of 36x. Hence, we believe the stock is fairly valued at this level.

Source: AmInvest Research - 31 Jul 2023